Starting in 2026, the landscape of paid family and medical leave (PFML) is set to shift significantly. Thanks to the One Big Beautiful Bill Act (OBBBA), the Section 45S tax credit is now permanent—and more accessible. This change is intended to encourage broader adoption of PFML policies across U.S. workplaces.

What’s Changing?

OBBBA introduces several key updates that expand employer eligibility and simplify compliance:

• Permanence: The PFML credit is now permanent.
• Flexible Tenure: Employers may choose 6 months or 1 year of service as eligibility criteria.
• Part-Time Inclusion: Employees working at least 20 hours per week qualify for prorated leave.
• Controlled Group Aggregation: Related employers are treated as one for credit purposes.
• State-Mandated Leave: State PFML programs count for eligibility, but not for credit amounts.

Eligibility Checklist for Employers

To claim the credit, employers must have a written PFML policy that:

• Provides at least 2 weeks of paid leave annually to full-time employees.
• Offers prorated leave to part-time employees working ≥20 hours/week.
• Pays at least 50% of regular wages during leave.
• Includes non-interference language (if not covered by FMLA).

The policy must apply to employees who:

• Have been employed for ≥6 months or ≥1 year.
• Earn ≤60% of the highly compensated employee threshold (e.g., $96,000 in 2025).

Qualifying Leave Reasons

• Birth, adoption, or foster care placement
• Serious health conditions (self or family)
• Military exigency
• Caring for a service member

How to Claim the Credit

Employers can claim the credit by:

1. Completing IRS Form 8994 – Employer Credit for Paid Family and Medical Leave
2. Attaching the form to their annual federal tax return
3. Maintaining documentation, including:
   • The written PFML policy
   • Payroll records
   • Employee eligibility information

Credit Calculation

• Starts at 12.5% of wages paid during leave
• Increases by 0.25% for each percentage point above 50% wage replacement
• Maximum credit: 25%

Final Thoughts

The 2026 updates to the PFML credit offer a meaningful opportunity for employers to support their workforce while benefiting from a valuable tax incentive. Now is an ideal time for employers to review their leave policies and ensure alignment with the updated requirements.

Piper Jordan is here to help! If you have any questions or need support with any of these items, please reach out to your consulting team.

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