New Paid Family & Medical Leave Tax Credit: What It Means for Workers in 2026

Working Americans, especially family caregivers, are set to benefit from a major update in the One Big Beautiful Bill Act, recently signed into law.

One of the biggest wins is the expansion of the Paid Family and Medical Leave (PFML) Tax Credit, a federal incentive that encourages businesses to offer paid time off for health and caregiving needs.
 

What Is the PFML Tax Credit?

The PFML tax credit is a business tax credit available to employers that choose to offer paid family and medical leave.

While the credit goes to employers, workers directly benefit because the program helps more businesses afford paid time off.

To qualify, employers must:

• Offer at least two weeks of paid leave each year (adjusted for part-time workers)

• Pay at least 50% of the employee’s normal wages during leave
   

Who Is Covered?

The credit applies to employees who:

• Work at least 20 hours per week

• Have been employed for 6 months

• Earn under $93,000 a year (for 2025 full-time workers)
   

How Much Is the Credit?

Employers can receive:

• 12.5% credit if they pay workers 50% of their wages during leave

• Up to 25% credit if they pay full wages

The credit covers up to 12 weeks per worker per year.
 

What Can Paid Leave Be Used For?

Eligible workers can use paid leave to:

• Recover from their own medical condition

• Care for a spouse, parent, or child with a serious health issue

• Welcome a new child (birth, adoption, fostering)

• Support a service member

• Handle other major family-related health needs
   

Who Benefits the Most?

This update is a major win for:

• Working family caregivers, especially the 63 million Americans balancing jobs and caregiving

• Small business employees, who are far less likely to have paid leave

• Workers who often cut hours, or quit jobs, because caregiving becomes overwhelming
   

What Changed Under the New Law?

Here’s what’s new:

• The tax credit is now permanent (it was set to expire).

• Employees become eligible after 6 months (previously 1 year).

• The updated rules take effect for the 2026 tax year.

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