Regulatory Updates
IRS Releases Guidance on the Permanent Expansion of Paid Family and Medical Leave under the Working Families Tax Cuts
Published August 06, 2026
The Internal Revenue Service (IRS) and the Department of the Treasury (Treasury) issued Notice 2026-28 providing guidance on the employer credit for paid family and medical leave (PFML) under the Working Families Tax Cuts (WFTC). This guidance will be incorporated into proposed regulations released at a later time.
The WFTC permanently expands the employer tax credit for PFML, providing businesses greater incentives to offer up to 12 weeks of paid leave. Employees may use the leave to recover from a serious health condition or to care for certain family members with serious health conditions.
The WFTC also makes several key improvements to the credit, including:
- Expanded Eligibility: Employers can claim the credit for employees with six months of service and for part-time employees customarily working 20 hours or more per week.
- Expanded Coverage: Employers can claim the credit for insurance premiums to provide leave, or wages paid during leave.
- State and Local Mandates: Employers can count leave provided under state or local mandates toward the eligibility for this federal tax credit, but not toward the credit calculation.
Beginning in 2026, employers can claim the credit for premiums paid for PFML insurance policies, in addition to wages paid during PFML leave. To help employers apply the new premium-based method, Notice 2026-28 addresses how the premium-based method compares to the wage-based method, how to allocate the qualifying premiums, and how to elect between the premium method and the wage method.
Beginning in 2026, more employers providing paid family and medical leave that meets certain requirements can take advantage of a general business tax credit ranging from 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per taxable year.
The IRS and Treasury intend to release proposed regulations consistent with the guidance. The forthcoming proposed regulations, when finalized, would apply prospectively to wages and insurance premiums paid or incurred after issuance of the final regulations. Taxpayers may rely on the guidance contained in this notice for taxable years beginning after December 31, 2025, and before the issuance of the proposed regulations.