By Rachel Zheliabovskii
Congress’ recently passed budget and tax bill — the One Big Beautiful Bill Act — makes permanent a tax credit for employers who offer paid family and medical leave (PFML).
Congress first passed the temporary credit in 2017 as part of the Tax Cuts and Jobs Act. The credit, which was extended temporarily several times, allowed employers to claim a general business credit for offering PFML to eligible employees. The credit is worth 12.5% of the employee’s wages for a leave period and goes up by 0.25% for each percentage point of wages paid over 50%, up to 25%.
The One Big Beautiful Bill Act, however, expands the credit in a couple of ways.
- In addition to claiming a credit for wages paid, employers can now also get a tax credit for a portion of insurance premiums paid for an employee on PFML.
- It also now offers a credit for employers in states with mandated PFML laws. Previously, employers in those states were not eligible for the credit. Now, employers who provide more than their state’s mandated paid medical leave can claim a tax credit on the wages and insurance premiums paid during leave in excess of state requirements.
The tax credit and the recent changes are the work of U.S. Sens Deb Fischer (R-Neb.) and Angus King (I-Maine). The credit has garnered support from AARP, the Bipartisan Policy Center, labor groups, and some small business coalitions, though opponents have expressed concerns over administrative costs.
How to Claim the PFML Tax Credit
To claim the credit, employers must have a written policy that offers a minimum of two weeks of PFML annually or a policy offering more than their state’s mandated paid family and medical leave.
“Employers should adopt a written policy that meets IRS requirements, ensure leave is paid at least 50% of wages, and covers all qualifying employees,” said John Kuenstler, an attorney with Barnes & Thornburg in Chicago and Los Angeles.
Making the tax credit permanent provides certainty and reduces financial risk for employers, “making it more attractive for smaller employers to invest in paid-leave programs,” Kuenstler said.
Managing PFML Leave
State PFML programs usually offer paid-leave benefits that are typically funded through payroll contributions. An employee’s PFML eligibility and the benefits to which they are entitled vary by state. Meanwhile, the federal Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid, job-protected leave for eligible workers.
“Employers generally run FMLA and PFML concurrently when the leave qualifies under both laws,” Kuenstler said.
In some states, PFML may even exceed available leave time under the FMLA. While both programs can run at the same time, “because PFML is typically not mandatory to use, employees may choose to take unpaid FMLA first and then use PFML, effectively extending their time off,” Kuenstler said.
He recommended that employers implement policies specifying whether both programs must run concurrently. It is up to employers to track PFML and FMLA use and remaining eligibility separately and notify employees of their rights under each program.
These administrative burdens are compounded for multistate employers, who “must also manage different contribution rates, notice requirements, and available benefits and leave times,” Kuenstler said. He suggested that multistate employers adopt a national policy that exceeds the most generous state requirements applicable to their employees.
Employers with their own private paid-leave plan may wonder whether this exempts them from providing FMLA leave. The answer is no.
“Employers must still provide unpaid, job-protected leave under FMLA if the employee qualifies,” Kuenstler said.
