IRS Issues New Guidance On The PFML Tax Credit
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Notice 2026-28 clarifies how employers can use insurance premiums, not just wages, to claim the credit for paid family and medical leave.
On Aug. 5, 2026, the Treasury Department and the IRS released Notice 2026-28, providing employers with long-awaited guidance on how to claim the tax credit for certain employer expenses related to paid family and medical leave (PFML). The notice addresses changes made by the One Big Beautiful Bill Act (OBBBA), and applies to tax years beginning after Dec. 31, 2025.
For business owners weighing whether a PFML policy is worth the investment, the timing matters. The credit under Section 45S of the Internal Revenue Code is no longer temporary, and the rules for calculating it just got more flexible.
Why The PFML Tax Credit Just Got More Valuable
Section 45S has allowed a tax credit for certain employer expenses related to providing PFML since 2018, but it was never permanent. Before the OBBBA passed in July 2025, the credit was set to expire Dec. 31, 2025.
The OBBBA made the credit permanent and expanded it in several ways, according to the IRS newsroom announcement:
A new premium-based method. Employers can now claim a percentage of the premiums paid for a PFML insurance policy, regardless of whether an employee actually took leave that year. Previously, the credit applied only to wages paid to employees while they were on leave.
A shorter service requirement. Employees now qualify after six months of employment, down from one year.
A part-time floor. The credit applies to leave taken by employees who work at least 20 hours per week.
State leave counts toward eligibility, not calculation. Employers can count leave provided under state or local mandates toward meeting the credit's eligibility threshold, but that leave still cannot be used in the credit calculation itself.
Employers must still provide at least two weeks of PFML annually to qualify, and the credit generally ranges from 12.5% to 25% of wages or premiums, capped at 12 weeks of leave per employee each tax year.
What Notice 2026-28 Clarifies
The new guidance takes a question-and-answer format and focuses squarely on the mechanics of the premium method. According to the IRS, it addresses:
How the premium-based method compares to the wage-based method.
How employers allocate qualifying premiums.
How employers elect between the two methods.
Allocating Blended Premiums
Not every dollar of a PFML insurance premium is creditable. Under the notice, any portion of a premium that funds leave ineligible for the credit under the wage method is also ineligible under the premium method. Only the share of a premium covering PFML-qualified employees, as defined in the Code, counts.
When a policy bundles creditable and noncreditable coverage into a single "blended" premium, employers may allocate that premium using any reasonable method consistent with the policy's terms, as long as they support that allocation with contemporaneous records.
What This Means For Employers Now
Treasury and the IRS intend to fold this guidance into forthcoming proposed regulations, but employers can rely on Notice 2026-28 in the meantime. The agencies are accepting public comments on the notice through Oct. 16, 2026.
For companies that previously ruled out a paid family and medical leave policy because tracking individual wage payments felt too burdensome, the premium method changes the calculus. Employers considering the credit for the first time, or those looking to move from the wage method to the premium method, should review their current leave policies against the updated eligibility rules before the next tax filing season.
The Siekmann Company can help you evaluate whether the premium method or wage method makes more sense for your workforce, and whether your existing leave policy meets the written-policy requirements under Section 45S. Contact The Siekmann Company today to talk through your options.
Frequently Asked Questions
What is the PFML tax credit?
The PFML tax credit is a federal general business credit under Section 45S of the Internal Revenue Code. It allows eligible employers to claim a tax credit for certain employer expenses incurred in providing paid family and medical leave to qualifying employees.
How much is the tax credit for certain employer expenses under Section 45S?
The credit generally ranges from 12.5% to 25% of wages or, under the new premium method, insurance premiums, for up to 12 weeks of paid family and medical leave per qualifying employee each tax year.
Can employers claim the credit without an employee taking leave?
Yes, under the new premium method created by the OBBBA. Employers can claim a percentage of PFML insurance premiums paid during the year regardless of whether a qualifying employee actually took leave.
When can employers rely on Notice 2026-28?
Employers may rely on the notice now, for tax years beginning after Dec. 31, 2025, even though Treasury and the IRS plan to issue formal proposed regulations later.
