The policy does not establish a federal paid-leave program that workers can apply for directly. Instead, it uses tax incentives to encourage employers to provide paid family and medical leave. According to the Internal Revenue Service (IRS), the changes were made under the Working Families Tax Cuts legislation and are explained in Notice 2026-28, issued by the Treasury Department and the IRS on August 5, 2026.
Who Can Qualify under the Expanded Rules
Employers offering qualifying paid family and medical leave can receive a general business tax credit ranging from 12.5% to 25% of wages paid to eligible employees for up to 12 weeks of leave in a taxable year.
Eligibility has also been broadened. Employers can now claim the credit for employees who have completed at least six months of service, rather than the longer service requirement that applied previously. Part-time employees who customarily work at least 20 hours per week may also be covered under the expanded rules.
According to Treasury and the IRS, employers may count leave required under state or local laws when determining whether their program meets the eligibility requirements for the federal credit. Payments made specifically to satisfy those state or local mandates, though, do not count when calculating the federal credit itself.
The qualifying leave can include time taken by an employee to recover from a serious health condition or to care for certain family members with serious health conditions. Newsweek reported that family and medical leave may also cover circumstances such as the birth or adoption of a child and certain military family situations under federal leave protections.
For workers, eligibility for paid leave still depends on what their employer provides. Employees cannot submit an application to the IRS to receive the benefit, and employers are not required by this tax credit to establish a paid-leave program.
A New Way for Employers to Claim the Credit
One of the main changes beginning in 2026 is the addition of a premium-based calculation method. Employers that purchase insurance policies to provide paid family and medical leave can now claim the credit based on qualifying premiums, rather than only on wages paid directly while an employee is on leave.
According to Reuters, many businesses use insurance policies to cover paid-leave costs, while the earlier version of the credit generally focused on employers that continued paying wages during an employee’s absence. The new guidance addresses that difference by permitting qualifying insurance premiums to be used when calculating the credit. Notice 2026-28 explains how employers should allocate qualifying premiums and how they may choose between the premium-based and wage-based methods. Employers may use both approaches, but they cannot claim the credit twice for the same period of leave.
The Treasury Department and IRS said they plan to issue proposed regulations providing broader guidance on the expanded program. Employers may rely on Notice 2026-28 for taxable years beginning after December 31, 2025, and before those proposed regulations are issued. Public comments on the guidance are due by October 16, 2026.
For employees, the practical route remains through the workplace. Workers seeking paid family or medical leave must determine whether their employer offers a qualifying program, what circumstances are covered, how much pay is available, and whether the benefit is provided directly by the employer or through an insurance policy.
