INSIGHTS · AUGUST 14, 2026

The Paid Leave Credit Just Became Permanent. Most Employers Haven't Repriced It.

Who should keep reading: employers with W-2 employees (workers who receive a Form W-2 wage statement) who already provide paid family and medical leave, fund it through an insurance policy, or are weighing whether to offer it. Who is likely unaffected: solo owners and single-member entities with no employees on payroll — this is an employer credit, so with no qualifying employees there is nothing to claim.

Yes, it changes something. The employer credit for paid family and medical leave (PFML) — paid time off for an employee's own serious health condition or to care for certain family members — is now permanent, and the rules around it are broader than the version most owners last looked at. On August 5, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2026-28, guidance on that credit under the Working Families Tax Cuts (WFTC), the tax law that made it permanent and expanded both eligibility and coverage (IRS IR-2026-86).

Here is the part worth your attention: this is a benefit-design decision with a tax offset attached, not a payroll-mechanics chore. If you operate in a state with a leave mandate, you may already be doing the work — and claiming none of the credit.

Is the employer paid family and medical leave tax credit permanent now?

Yes. The Working Families Tax Cuts (WFTC), the tax law addressed in IRS news release IR-2026-86, makes the Internal Revenue Code Section 45S (§45S) employer credit for paid family and medical leave permanent, and expands both eligibility and coverage. Permanence matters because it turns a temporary incentive into a planning input.

Temporary provisions get treated as noise. A permanent one belongs in the model — in how you price a leave policy, how you structure benefits across multiple entities, and what you tell a manager who asks whether the company can afford to cover twelve weeks. Treasury and the IRS also stated they intend to issue proposed regulations consistent with Notice 2026-28 and requested public comments (IRS IR-2026-86), so the framework is settled in direction while the fine detail is still being written.

How much is the paid family and medical leave credit worth in 2026?

Beginning in 2026, the credit is 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 (IRS IR-2026-86). Where an employer lands in that range is a program-design question for qualified tax counsel.

The numbers, in scannable form (IRS IR-2026-86):

Leave that counts covers an employee recovering from a serious health condition, or caring for certain family members with serious health conditions (IRS IR-2026-86). This is medical and caregiving leave — not a general paid-time-off policy with a new label on it.

Which employees now count toward the credit?

The eligibility rules got wider. Under the expanded provisions, employers can claim the credit for employees with six months of service, and for part-time employees who customarily work 20 or more hours per week (IRS IR-2026-86). Two variables — tenure and customary hours — now drive who qualifies.

That second point deserves emphasis. Businesses built on substantial part-time staffing — practices, clinics, hospitality groups, seasonal operations, professional firms with fractional talent — have historically been outside the frame of credits like this one. A 20-hour customary-hours line changes which side of the frame a meaningful share of a workforce sits on.

Whether any specific employee meets these tests is a determination for your tax advisor against your actual payroll records.

Can I claim the credit on insurance premiums instead of wages?

Yes — that is one of the notable expansions. Beginning in 2026, employers can claim the credit for insurance premiums paid to provide paid family and medical leave, in addition to wages paid during leave (IRS IR-2026-86). Notice 2026-28 addresses how the two methods compare and how to elect between them.

Specifically, per IR-2026-86, Notice 2026-28 addresses:

If you fund leave through an insurance policy, that arrangement is no longer a reason the credit is off the table. It is now a method election — which means it is a modeling exercise, and modeling exercises have right answers. Which method produces the better result for a given employer depends on facts specific to that employer and should be evaluated with qualified tax counsel.

Does state-mandated paid leave count toward the federal credit?

Partially — and the distinction is easy to get wrong. Employers can count leave provided under state or local mandates toward eligibility for the federal credit, but not toward the credit calculation (IRS IR-2026-86). Mandated leave can open the door; it does not fill the bucket.

Read that as two separate questions:

For a multi-state operator, this is where the work lives. Your leave obligations differ by jurisdiction, your policy documentation may not distinguish mandated leave from voluntary leave, and the credit computation turns on exactly that distinction. Getting it right is a records-and-allocation problem before it is a tax problem.

What is the Monday-morning move on the paid leave credit?

Pull one number: how many people on your payroll have at least six months of service and customarily work 20 or more hours per week. That headcount is the population the credit now turns on (IRS IR-2026-86). Everything else is downstream of it.

Decision owner: you, not your payroll administrator. Payroll can produce the report; only the owner decides whether the leave policy changes.

The sequence we would run:

  1. Count the qualifying population — 6+ months of service, 20+ customary weekly hours.
  2. Identify your funding method — do you pay wages during leave, pay insurance premiums, or both? The method election requires knowing this precisely.
  3. Separate mandated from voluntary leave in your policy documentation, by jurisdiction. Eligibility and calculation treat them differently.
  4. Bring it to qualified tax counsel with the numbers already assembled, and ask which method the facts favor.

Most owners will discover the paperwork answer before they discover the strategy answer — the report takes an afternoon; the policy decision is the part that compounds. That is the same reason a benefit-design question like whether a health savings account is the right fit for owners belongs in a tax conversation rather than an HR one.

Operating metric to keep: qualifying-employee headcount, refreshed each quarter. Tenure and hours both drift, and the credit follows them.

Frequently asked questions

Does the paid family and medical leave credit apply if I have no employees?

No. The Internal Revenue Code Section 45S credit addressed in IRS IR-2026-86 is an employer credit tied to wages paid to qualifying employees, or premiums paid to provide leave for them. A solo owner with no one on payroll has no qualifying employees and therefore nothing to claim. If you later add W-2 staff, revisit it at that point.

What is Notice 2026-28, and is it the final word?

Notice 2026-28 is guidance issued by the Department of the Treasury and the Internal Revenue Service on August 5, 2026, covering the employer paid family and medical leave credit under the Working Families Tax Cuts. It is not the end state: Treasury and the IRS stated they intend to issue proposed regulations consistent with the notice and requested comments (IRS IR-2026-86).

What kind of leave qualifies — can I count regular paid time off?

No. Per IRS IR-2026-86, qualifying leave covers an employee recovering from a serious health condition, or caring for certain family members with serious health conditions. General paid time off, vacation, or discretionary personal days are a different category. Relabeling an existing paid-time-off policy does not convert it into qualifying family and medical leave.

We operate in several states with different leave rules. Where does that leave us?

In the most complex position, and the one with the most to gain from precision. Leave provided under state or local mandates counts toward eligibility for the federal credit but not toward the credit calculation (IRS IR-2026-86). Multi-state employers need leave records that separate mandated from voluntary leave by jurisdiction before any computation is attempted.

Should we start offering paid family and medical leave because of this credit?

That is a benefit-design and cash-flow decision, not a tax decision alone. The credit — 12.5% to 25% of qualifying wages for up to 12 weeks per taxable year, now permanent (IRS IR-2026-86) — offsets part of a real cost; it does not eliminate it. Model the full cost with qualified counsel before changing policy.

Action takeaways

Why this matters to us

At Into Focus Accounting — a boutique financial strategy and execution firm headquartered in St. Augustine, Florida — this is exactly the kind of item that gets read, nodded at, and never actioned. A permanent credit tied to a benefit you may already be providing is not a memo. It is an unclaimed position sitting inside your own payroll data.

We do not hand clients a summary and wish them luck. We pull the headcount, separate the leave categories, model the method election, and bring the decision to the owner already framed. Financial Strategy, Executed.

Our technology — including the DUR platform — is what makes that level of detail sustainable across a client base. The firm stays deliberately boutique; the systems scale.

For more owner-level analysis like this, see more owner-level tax and operating analysis on the Into Focus Accounting blog.

Sources

This article is educational and general in nature. It is not individualized tax, legal, or investment advice, and it takes no political position. Tax outcomes depend on facts specific to your entities, payroll, and jurisdictions. Consult qualified tax counsel about your situation before acting.

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