A Permanent Perk for Paid Leave

Contributor: Sarah Hipp, Centro Absence Management Consultant

In early August, the U.S. Treasury and IRS issued guidance that expands and permanently establishes a tax credit for employers who offer paid family and medical leave benefits. 

For brokers advising employers on leave strategy, this isn’t just an interesting development.  It opens the door for a timely conversation with clients about their paid leave strategy, whether they currently offer benefits or are considering implementing a new program.

What This Means for Employers

The Treasury and IRS issued Notice 2026-28, providing guidance on how employers can apply a tax credit that rewards businesses for voluntarily offering paid family and medical leave benefits to employees.

Previously a temporary provision, this credit is now permanent under the Working Families Tax Cuts (WFTC).

The WFTC also meaningfully expands coverage and eligibility:

• Shorter eligibility waiting period.  Employers can now claim the tax credit for employees with just six months of service, and for part-time employees working 20 or more hours per week.
• Premiums now count, not just wages.  Starting in 2026, employers can claim the credit based on premiums paid to provide a PFML policy, or for wages paid directly during leave. 
• State-mandated leave counts toward eligibility, not the credit itself.  Leave provided to satisfy a state or local mandate can help an employer meet the credit’s eligibility threshold.  However, these mandated benefits do not count toward the actual credit calculation. Employers still need a qualifying voluntary benefit on top of any required mandate.
• Credit range.  Eligible employers can claim a general business credit of 12.5% to 25% of wages paid during up to 12 weeks of qualifying leave per year, depending on the wage-replacement percentage they offer.

The Treasury and the IRS intend to issue proposed regulations and will be updating the Section 45S Employer Credit for Paid Family and Medical Leave FAQs page accordingly.

The Takeaway

While a growing number of states have passed paid leave legislation, without a federal mandate in place policymakers are leaning harder into incentivizing employers to offer paid leave on a voluntary basis by making the tax credit permanent and easier to access.  This is where benefits advisors step in.

For clients considering offering a voluntary paid leave program, here are the top three considerations for developing a competitive benefits strategy:

• Minimum requirements – In order to qualify, a voluntary paid leave program must meet certain minimum criteria, including providing at least two weeks of leave annually and at least 50% replacement of an employee’s normal wages.  Ensure clients are aware of these guidelines and developing programs that incorporate all required elements, so their program doesn’t fall short.  

• Workforce demographics and needs – A company sponsored paid leave program isn’t one-size-fits-all.  Employers should understand their workforce’s needs, demographics, and driving factors to ensure any new program works for their employees, not just for tax credit purposes.  Reviewing past leave history is a good way to identify trends, spot gaps in coverage, and understand how paid leave benefits can best support the client’s specific workforce.

• Administration – A paid leave program is more than just a policy.  Clients need to be prepared to take the benefit from paper to practice.  This includes having a system, process, and staffing in place to administer it.  

The Treasury and IRS guidance meaningfully expands this credit, but there’s still much to consider when it comes to implementation.

Centro’s Absence Management Consulting Team works with brokers to navigate leave management. While Centro’s AMC Team is not a certified tax advisor, we can help develop meaningful absence and leave strategies for your clients.