A tax credit that has quietly encouraged employers to offer paid family and medical leave for the past several years just became permanent, and its reach just got noticeably wider. The Treasury Department and the IRS issued Notice 2026-28 on August 5, spelling out how the employer credit for paid family and medical leave now works under the Working Families Tax Cuts. The headline change for workers: for the first time, the credit extends to part-time employees who work at least 20 hours a week and to employees with as little as six months on the job, two groups that were shut out under the old rules.
Who Was Excluded Before, and Who Qualifies Now
The federal paid-leave credit, formally Section 45S of the tax code, has existed in some form since 2018 but historically rewarded employers mainly for covering full-time, longer-tenured staff. Under the prior rules, an employer generally needed to look past newer hires and part-timers to claim the benefit, which meant the workers often most in need of a cushion — someone six months into a new job, or a part-time worker piecing together 20-25 hours a week — had the least chance of their employer actually offering paid leave through this incentive. Notice 2026-28 changes that starting with taxable years beginning in 2026: employers can now claim the credit for employees with six months of service and for part-time employees who customarily work 20 hours or more per week.
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What the Credit Is Actually Worth to an Employer
The IRS guidance sets the credit at 12.5% to 25% of wages paid to a qualifying employee while they are out on family or medical leave, for up to 12 weeks per taxable year. The exact percentage an employer can claim rises with how much of the employee’s normal pay they continue during the leave — a business that replaces a smaller share of wages gets the lower end of the range, while one that pays closer to full wages during leave gets closer to 25%. The guidance is clear that this is a general business tax credit, meaning it reduces a company’s tax bill directly rather than functioning as a deduction, which makes it more valuable dollar-for-dollar than most business write-offs.
A New Way to Fund the Benefit: Insurance Premiums, Not Just Wages
One of the more practical changes in this notice is aimed at smaller employers who cannot easily self-fund weeks of continued pay. Beginning in 2026, businesses can claim the credit either for wages paid directly during an employee’s leave, the original method, or for premiums paid on a separate PFML insurance policy that covers the leave — a newly available option. Notice 2026-28 walks through how the premium-based method compares with the wage-based method, how to allocate qualifying premiums, and how an employer elects between the two. For a small business owner who has never offered paid leave because covering weeks of a worker’s salary out of cash flow felt impossible, buying an insurance policy and claiming the credit against the premium is a meaningfully different, and often more affordable, way in.
No Dollar Cap Stated — What That Actually Means
The IRS release describes the credit as a percentage of wages, up to 12 weeks a year, without naming a maximum dollar amount an employer can claim per employee or in total. That is worth stating plainly rather than guessing at a number: nothing in the published guidance imposes a cap beyond the wage-percentage-and-weeks formula itself, so the credit’s actual dollar value scales directly with what an employer pays a given worker during leave. Employers and workers should not treat the absence of a stated cap as a guarantee that no cap will ever appear — Treasury and the IRS say they intend to issue proposed regulations addressing the statute “comprehensively,” so a more detailed cap or limitation could still surface once that formal rulemaking begins.
What This Means If a Paycheck Depends on It
For a worker, this notice does not create a new personal benefit or a new leave entitlement by itself — the credit is a tax incentive aimed at employers, not a program workers apply to directly. What it does is change the math for a small or mid-sized employer weighing whether to add paid leave as a benefit, particularly for newer hires and part-time staff who were previously excluded from the calculation. A part-time worker at a business considering this benefit for the first time has a reasonable case for asking their employer whether they now qualify under the expanded rules, since the six-month and 20-hour thresholds are new as of this guidance and many employers have not yet updated their leave policies to reflect them. Full technical detail, including worked examples for the premium-versus-wage election, is available in Notice 2026-28 itself and on the IRS’s Working Families Tax Cuts guidance hub.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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