Employers that provide paid family and medical leave to their employees may have a greater opportunity to benefit from a federal tax credit following recent changes under the Working Families Tax Cuts.

The employer credit for Paid Family and Medical Leave (PFML) has been made permanent, and several enhancements have expanded who and what may qualify. For business owners, this makes it a good time to review existing leave policies and benefits and determine whether the credit could provide additional tax savings.

What Is the Paid Family and Medical Leave Tax Credit?

Eligible employers can claim a general business tax credit ranging from 12.5% to 25% of qualifying wages paid to eligible employees for up to 12 weeks of family and medical leave during a taxable year.

Qualifying leave may include time away from work for:

  • The birth, adoption, or fostering of a child
  • An employee’s own serious health condition
  • Caring for a spouse, child, or parent with a serious health condition
  • Certain circumstances involving a close relative serving on covered active duty in the Armed Forces
  • Caring for a seriously ill or injured covered servicemember

What Has Changed?

Several enhancements may make the credit relevant to more employers.

The credit is now permanent.
Employers now have greater certainty when considering the credit as part of their longer-term tax and employee benefit planning.

More employees may qualify.
Eligibility has been expanded to include employees with at least six months of service as well as part-time employees working 20 hours or more per week.

Employers have more options for qualifying costs.
The credit may now be based on qualifying insurance premiums paid to provide PFML benefits or on wages paid to employees while they are on qualifying leave.

State and local leave requirements may help employers qualify.
Leave provided under state or local mandates can now count toward determining eligibility for the federal credit. However, those mandated amounts are not included when calculating the federal credit itself.

This may be particularly important for California employers that already operate under state and local leave requirements.

Two Ways Employers May Claim the Credit

Employers now have two potential methods for calculating the credit:

Premium-based method: The credit is based on qualifying premiums paid by the employer for PFML insurance policies.

Wage-based method: The credit is based on qualifying wages paid while an employee is on family or medical leave.

The right approach will depend on the employer’s leave program, workforce, insurance arrangements, and other circumstances.

What Should Business Owners Consider Now?

With the credit now permanent and eligibility expanded, employers that offer paid family and medical leave should consider reviewing their current policies rather than assuming they do—or do not—qualify.

This review can be part of a broader tax planning conversation. Understanding how your leave program is structured, which employees qualify, what costs may be eligible, and which calculation method makes the most sense can help determine whether the credit creates a meaningful tax benefit for your business.

At B+Co, we work with business owners to look beyond tax compliance and identify planning opportunities that support both current needs and longer-term business goals.

Have questions about how these changes could affect your business? Contact us.