The federal Family and Medical Leave Act (FMLA) provides for 12 weeks of unpaid leave to qualified employees for their own serious health conditions or for care of specified family members with such conditions, as well as pregnancies or child care within a year of birth, care of a newly placed foster or adopted child within one year of placement, and exigencies related to family military members.  California has the California Family Rights Act (CFRA), with similar protections, also unpaid, as well as Pregnancy Disability Leave.

Provisions of the federal 2017 Tax Cuts and Jobs Act created tax breaks for companies that pay employees on such leaves.  The 2025 Working Families Tax Cuts bill modified those paid medical breaks, making permanent a paid family and medical leave tax credit of 12.5-25% of wages paid to employees on paid family leave for up to 12 weeks.

Under the extended law, an employer can receive a tax break for amounts paid directly to employees while on such medical leaves and also for insurance premiums the employer pays for policies providing such coverage.

The IRS has published guidance on this tax break, but is still working on regulations to implement its provisions and is soliciting comments by October 16, 2026.

Employers who wish to pay employees while on such leaves should obtain further information from their tax professionals on the technical aspects of using these credits.

Take-Aways:

Employers who wish to pay employees who take family leave or to pay for insurance policies that provide such coverage should check with their accountants about receiving tax breaks for doing so.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Leave Leave Alone: Employer Pays for FMLA Violation (July 24, 2026)
• Handbook Helper Episode 32: Family and Medical Leaves Policy (July 20, 2023)
• Employee Handbooks & Employment Forms

Helena Kobrin

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September  25, 2026

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