No Items in Cart 
On August 5th, 2026, the Internal Revenue Service (IRS) and the U.S. Department of the Treasury (Treasury) issued guidance relating to paid family and medical leave. Specifically, the information was included in Notice 2026-28 and includes specific information on employer credits for paid family and medical leave under the Working Families Tax Cuts (WFTC). Earlier this month, the IRS issued updated Frequently Asked Questions (FAQs) regarding overtime deductions.
What Is Paid Family and Medical Leave?
Overall, paid family and medical leave allows employees to receive some of their wages when they need time away from work for certain family or medical reasons. As explained by the IRS and Treasury, in this situation leave can only be considered qualifying if it is tied to reasons recognized under the federal Family and Medical Leave Act (FMLA). Such reasons include:
- The birth of a child and to care for the newborn child within one year of birth,
- The placement with the employee of a child for adoption or foster care and to care for the newly placed child within one year of placement,
- To care for the employee's spouse, child, or parent who has a serious health condition,
- A serious health condition that makes the employee unable to perform the functions of their job, and
- Any qualifying exigency arising out of the fact that the employee's spouse, son, daughter, or parent is a covered military member on covered active duty or call to covered active duty status.
Additionally, the FMLA generally provides eligible employees of covered employers with unpaid, job-protected leave. Private-sector employers generally become covered by the FMLA when they employ 50 or more employees.
What Are the Working Families Tax Cuts?
The Working Families Tax Cuts were enacted on July 4th, 2025, as part of the One, Big, Beautiful Bill Act (OBBBA). Explicitly, the legislation permanently expands the employer tax credit for paid family and medical leave, providing businesses with 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. It is important to note that the paid-leave credit was created as a temporary provision under the Tax Cuts and Jobs Act of 2017 and was subsequently extended.
What Does the Permanent Expansion of the Paid Family and Medical Leave Tax Credit Mean for Employers?
The WFTC also makes several key improvements to the employer tax credit, including:
- Expanded Eligibility. The credit can be claimed for employees with six months of service and for part-time employees customarily working 20 hours or more per week.
- Expanded Coverage. The credit can be claimed for insurance premiums to provide leave, or wages paid during leave.
- State and Local Mandates. Leave provided under state or local mandates can be counted toward the eligibility for the federal tax credit, but not toward the credit calculation.
Chiefly, employers can claim the credit for premiums paid for paid family and medical leave insurance policies, in addition to wages paid during the leave. Included in the new guidance is information on:
- 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.
Employer Takeaways
Even though the two federal agencies are touting the expansion of the paid family and medical leave tax credits, official rules have not been formally finalized. Both the Treasury and the IRS intend to issue proposed regulations consistent with Notice 2026-28. Comments are requested on all aspects of the notice and any other issues regarding implementation of the permanent expansion. Written comments should be submitted on or before October 16th, 2026, electronically via the Federal eRulemaking Portal (type IRS-2026-0496 in the search field).
Finally, to assist employers, WorkWise Compliance now offers a selection of monthly and annual compliance plans to help businesses address their legal obligations under workplace laws, including virtual consulting services on important labor law compliance topics. These services can help affected businesses address current and proposed regulations on proper labor practices.
