Paid Family and Medical Leave Credit Made Permanent | SVA

Written by Stephen Bjork, CPA, MST | Oct 01, 2025

One of the many updates to the One Big Beautiful Bill Act (OBBBA) is the permanent extension and modification of the Employer Credit for Paid Family and Medical Leave.

While this credit has been around in some form since 2017, the new law makes it permanent and adds a few adjustments that could impact how businesses structure their leave policies.

Here’s what business owners need to know.

What Was the Paid Family and Medical Leave Credit?

Before the new law passed, the credit was available to employers who provided paid family and medical leave to eligible employees. Specifically:

The employee needed to have worked for the business for at least one year.
The employee had to earn $96,000 or less.
The credit ranged from 12.5% to 25% of the wages paid during the leave, depending on how much of the employee’s regular pay was replaced.
Employers needed to offer at least two weeks of paid leave at a minimum of 50% pay.
The credit was not available if the leave was already required by law.

The original version of the credit was set to expire at the end of 2025.

What's Changed Under the New Law?

Now that the provision has been made permanent, a few modifications have been introduced to broaden its accessibility and allow more employers to take advantage of it:

The Credit is Now Permanent	No more wondering if this benefit will vanish from year to year.
The Employment Threshold is Lowered	Employees become eligible after six months of service, instead of one year.
There is a 20-Hour Weekly Minimum	To qualify for the credit, employees must work at least 20 hours per week. This sets a clear line for part-time eligibility.
Insurance Premiums Now Count	If an employer uses an insurance policy to fund paid family and medical leave, those insurance premiums now qualify for the credit.
It's Applicable in All States	Employers can claim the credit even in states that already have mandatory paid leave laws.
There is Policy Documentation Flexibility	While a written policy is still standard, the law allows for some exceptions where a “substantial and legitimate business reason” exists for not having a written policy. (The practical use of this is still a bit unclear, but it’s part of the changes.)

How Does This Affect Business Owners?

For businesses already offering paid family and medical leave, this is mostly good news. The credit isn’t going anywhere, and the expanded eligibility criteria mean more of your workforce may now qualify for it, especially newer employees who haven’t yet hit the one-year mark.

If your business hasn’t explored this credit before, now is a good time to run the numbers. The inclusion of insurance premiums as qualifying expenses could be a helpful cost-sharing opportunity, especially for small and mid-sized businesses looking for predictable ways to offer competitive benefits.

Keep in mind, though, that employees must now work at least 20 hours a week to trigger the credit. If you’ve been offering paid leave to part-timers working less than that, you’ll want to double-check which employees are still eligible.

What Should Employers Do Next?

If your company offers (or is thinking about offering) paid family and medical leave, here are a few steps to take:

Review your current leave policy to see if it aligns with the new rules.
Identify eligible employees under the updated six-month employment threshold and 20-hour minimum.
If you’re using insurance to cover paid leave, make sure those premiums are documented and included in your credit calculations.
Talk to your tax advisor about how these changes apply to your business and whether you’re positioned to take full advantage of the credit moving forward.

This change brings more clarity and consistency to the paid family and medical leave credit. With the permanent extension, employers now have a long-term incentive to offer paid leave benefits while getting some tax relief in return.

If you’ve been on the fence about implementing a program or just weren’t sure it was worth the effort, this may be the nudge to take a fresh look.

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