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IRS Notice 2026-28: Expanded Section 45S Paid Family and Medical Leave Credit Guidance

IRS Notice 2026-28: Expanded Section 45S Paid Family and Medical Leave Credit Guidance

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    The IRS has issued Notice 2026-28 with interim guidance on the expanded §45S employer credit for paid family and medical leave (PFML), which applies for tax years beginning after December 31, 2025. Taxpayers may rely on the notice until proposed regulations are issued.

    Key practical points:

    • Permanent credit: §45S is now a permanent general business credit for eligible employers providing paid family and medical leave. An eligible employer is an employer that has a written PFML policy meeting certain requirements.
    • Expanded eligibility: Employers may treat employees as eligible after six months of service instead of one year. Certain part-time employees working at least 20 hours per week may qualify.
    • Credit amount: The wage-based credit remains 12.5% to 25% of qualifying wages paid for up to 12 weeks of qualifying leave per year.
    • New premium method: Beginning in 2026, employers with qualifying PFML insurance coverage may elect to calculate the credit based on eligible premiums, rather than solely on wages paid during leave.
    • No double benefit: Employers may use wage-based and premium-based methods for different benefits in appropriate cases but cannot claim both for the same instance of leave.
    • State/local mandates: State or local mandated leave can be counted to determine if an employer provides enough paid leave to be an eligible employer, but mandated leave generally is not included in calculating the federal credit amount.
    • Blended premiums: For policies covering both qualifying and nonqualifying benefits or employees, employers must allocate premiums using a reasonable, objective, and consistently applied method.

    For clients with PFML policies, insured leave benefits or operations in states with paid leave mandates, this is a good opportunity to review written leave policies, employee eligibility data and insurance premium records to discuss during 2026 planning discussions. Clients may benefit from modeling the wage-based vs. premium-based credit approach to ensure they receive the maximum credit available.

    Contact Frazier & Deeter to discuss how the expanded Section 45S credit could factor into your 2026 tax planning.

    Contributors

    Allison Stevens, Partner, Frazier & Deeter Advisory, LLC

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