New federal guidance broadens eligibility for a business tax credit covering paid family and medical leave, with the Trump administration seeking to increase access without creating a federal employer mandate.
By yourNEWS Media Newsroom
The Treasury Department and Internal Revenue Service issued new guidance Wednesday expanding a federal tax incentive intended to help more businesses provide paid family and medical leave to their employees.
The updated policy allows qualifying employers to claim a tax credit for wages or certain insurance premiums connected to paid leave programs. Administration officials said the changes are designed to make the credit easier to use and available to a larger group of businesses.
“Hardworking Americans should not have to choose between caring for a loved one and earning a paycheck,” Treasury Secretary Scott Bessent said in a statement.
The credit can support as many as 12 weeks of paid leave for employees who need time away from work because of a serious health condition, the birth or care of a child, or the illness of a family member.
Bessent said the expanded incentive should create “greater incentives to provide paid leave so workers can care for a newborn or other family member or recover from a serious illness without sacrificing their financial security.”
He said the Aug. 5 guidance “provides employers with the clarity they need to claim the enhanced credit, supporting American workers, families, and businesses.”
The original paid family and medical leave tax credit was established through President Donald Trump’s 2017 tax legislation. The credit was later expanded under the One Big Beautiful Bill Act, a broader tax and immigration package Trump signed into law in July 2025.
The administration also refers to that legislation as the Working Families Tax Cuts.
IRS Chief Executive Officer Frank Bisignano said the latest changes increase the number of businesses that can participate and provide additional options for covering employees during periods of leave.
“Changes enacted by the Working Families Tax Cuts will make more employers eligible for the credit and give them more ways to offer this benefit to their workers,” Bisignano said.
Under the Treasury Department’s guidance, employers may claim the credit for workers who have been employed by the business for at least six months.
Part-time employees may also qualify when they work at least 20 hours per week, according to the department.
Businesses can claim the credit based on wages paid directly to employees while they are on leave. Employers may also qualify for a credit involving premiums paid for insurance policies that finance paid family and medical leave benefits.
The guidance additionally addresses the growing number of state and local paid-leave requirements.
“Employers can count leave provided under state or local mandates toward the eligibility for this federal tax credit, but not toward the credit calculation,” the Treasury Department said.
That distinction allows businesses operating in jurisdictions with mandatory leave laws to use those programs when determining whether they satisfy federal eligibility requirements. The wages or benefits required under those mandates, however, cannot necessarily be included when calculating the amount of the federal credit.
The administration’s approach relies on tax policy rather than a national requirement compelling private employers to provide paid leave. Under the framework, businesses bear the direct cost while receiving a federal credit intended to offset part of the expense.
Sen. Deb Fischer of Nebraska has long advocated for using employer tax incentives to expand paid family and medical leave. Fischer said earlier this year that she secured the original policy’s inclusion in the 2017 tax law.
The federal government’s incentive-based model differs from policies in many other developed countries.
A 2023 study examining members of the Organisation for Economic Co-operation and Development found that new mothers received an average of approximately 19 weeks of paid maternity leave. Several countries provided full wage replacement during that period.
The United States was the only member of the 38-country organization without a national paid family and medical leave requirement, according to the Syracuse University research paper.
Paid sick-leave mandates have nevertheless expanded at the state and local levels. Eighteen states, including the District of Columbia, had laws requiring paid sick time, according to a Congressional Research Service report released earlier this year.
The new Treasury and IRS guidance seeks to make the federal credit more practical for employers operating within that patchwork of requirements.
By lowering eligibility barriers and allowing businesses to claim the credit through additional financing arrangements, the administration expects more employers to provide paid time away from work for childbirth, family caregiving and serious medical conditions.
The policy preserves the voluntary nature of the federal program while using the tax code to encourage broader participation by businesses.
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