By: HUB's Absence Management Team

Summary: PFML Employer Tax Credit Update

Under the Tax Cuts and Jobs Act (TCJA), employers offering paid family & medical leave (PFML) established tax credits. The credit was originally scheduled to expire at the end of 2025, but the One Big, Beautiful Bill Act enhanced that credit and made it permanent for employers.

Key Enhancements & Eligibility Changes

  • Wages or insurance premiums election: Employers may elect to calculate the credit based on either:
    • Wages paid to qualifying employees while on leave or
    • Premiums paid for a PFML insurance policy (for qualifying employees) — but not both.
  • Eligibility & Entitlement of the policy
    • The minimum eligibility threshold of your paid leave policy must be the following:
      • Minimum of two weeks of paid leave entitlement. Leave entitlement greater than 12 weeks cannot be claimed under the tax credit.
      • Six months of tenure with the company and worked a minimum of 20 hours per week.
      • Leave must cover FMLA-qualifying reasons and be job protected (even if not FMLA qualifying).
      • Provide at least a 50% income replacement that exceeds what a mandated PFML benefit already provides.
      • Employees who earn more than $96,000 cannot be counted for credit.

Credit Amount / Mechanics

  • Prior model: Credit ranged from 5% to 25% of wages paid to employees on PFML, depending on the wage replacement rate.
  • New model: Retains the same sliding scale (12.5% base + 0.25% for each percentage point above 50%, up to 25%) but allows application to insured premiums.
  • Premium-based election: Employers may claim the credit on PFML insurance premiums paid or incurred, even if no employees took leave, creating flexibility in plan design.

Action items: Compliance & Action Item Considerations

Here are some items to consider as we continue to understand this credit:

  • Policy drafting: Employers who have not yet adopted a formal paid leave policy will want to evaluate whether to adopt one now (meeting the IRS requirements) to preserve eligibility for the credit.
  • Benefit design review: Consider whether a PFML offering should be structured as a wages-paid leave program or as an insured benefit (premium-based) depending on cost/administration trade-offs.
  • Record-keeping: Employers must maintain documentation of qualifying employees, leave taken, wages paid, or premiums incurred, as applicable. Payroll and HR systems may require updates to track these data points. Work with your leave department or leave vendor to understand how they can support you with calculation of these credits.
  • Coordinate with tax counsel/advisors. Until IRS regulations are finalized, employers must interpret certain definitions (e.g., qualifying premium policies, written leave policies) conservatively and document their decisions. Work with your own tax counsel when calculating these credits and have them reviewed before submitting.

This bulletin is for general guidance only.

Official Resources

For more information regarding these updates visit:

If you have any questions, please contact your HUB Advisor. We will continue to monitor and provide updates as more information becomes available. View more Workforce Absence Management updates in our WAM Bulletins page.

NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s specific circumstances. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your organization’s particular needs.