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.

1. 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.
   
2. 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,...

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