Compliance
Paid Family and Medical Leave Tax Credit Amendments
IRS guidance clarifies the new premium-based credit method and the state PFML coordination rules.
August 13, 2026
On August 5, 2026, the IRS released Notice 2026-28, which aims to clarify employer application of the Paid Family and Medical Leave (PFML) tax credit established under the Working Families Tax Cuts provision of the “One Big Beautiful Bill Act” (OBBBA) signed into law on July 4, 2025.
The guidance provided by the IRS and the U.S. Department of the Treasury does the following:
Creates the New Premium Calculation Method
Before the amendment, employers generally calculated the credit based solely on qualifying wages paid to employees while on leave. The August 5 guidance explains how employers can now elect a new calculation method based on PFML insurance premiums paid or incurred: the wage method or the premium method.
Establishes Rules for Allocating Premiums
The IRS states that employers cannot automatically claim a credit for the entire premium if a policy covers more than qualifying family and medical leave benefits. Instead, employers must allocate premiums between creditable PFML coverage or non-creditable coverage or benefits.
Defines Creditable Coverage
Notice 2026-28 clarifies that only premiums applicable to leave benefits that would otherwise satisfy Section 45S requirements qualify for the credit, which helps prevent employers from obtaining credits for insurance products containing significant non-PFML benefits.
Determines Coordination with State PFML Programs
The August amendment confirms that leave required under state or local law, such as PFML, may be counted when determining whether an employer has a qualifying leave program.
Employers may rely on Notice 2026-28 for tax years beginning after December 31, 2025, until further regulations are issued. For more information on this amendment, please visit Section 45S Employer Credit for Paid Family and Medical Leave or Working Families Tax Cuts | Internal Revenue Service.
Reach out to your Hylant representative for further information. Don’t have one? Contact us here.
The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.
