With the current administration’s One Big Beautiful Bill and PFML tax credit extension in the news, we put together a Q&A with Paul Rumore, our Absence Management Consultant. Paul works with Birch’s Underwriting and Account Management team to support our clients in remaining compliant with all applicable statutory and regulatory requirements related to their employee benefits programs.
What should employers and brokers know about PFML and The One Big Beautiful Bill Act (OBBB)?
The OBBB made the Section 45S tax credit PERMANENT and expanded it. Starting January 1, 2026, employers can now claim a tax CREDIT for:
Group Insurance premiums that cover FMLA-type leave, or
Wages paid to employees during qualifying leave (for self-insured plans).
It’s important to note that the credit for premiums is available even if no employees use the benefit during the year.
What do employers need to do to ensure they qualify for the tax credit?
An employer must have a written policy that offers at least two weeks of paid leave annually to full-time employees (prorated for part-time employees), pays at least 50% of normal wages during leave and covers employees who have worked at least one year and 20+ hours/week (can go down to six months if desired).
The premium tax credit is capped at $96,000 for 2025. This will more than likely be adjusted for 2026 and every year thereafter.
Can state-mandated disability plans qualify for the tax credit?
Employers can count state or local leave mandates toward the minimum coverage requirements; HOWEVER, the tax credit would only apply to premiums paid for benefits in EXCESS of what the state law requires.
What types of plans qualify?
Eligible plans include Employer Paid Short Term Disability, STD with paid leave riders, Stand-alone paid family leave (PFL or PFML) policies, Private plans for state PFML or disability although credit only applies to excess coverage beyond state mandates.
How is the tax credit calculated?
The credit starts at 12.5% of the premium for plans that replace 50% of wages. The credit increases by 0.25% for each 1% above 50%, up to 25% credit for a 100% pay out. A 60% benefit (which is quite common) would qualify for a 15% tax credit.
I’m so confused! Can you explain with an example?
Sure, this is from a Guardian white paper on the subject and they provide good examples. I always think numbers help us understand concepts better than a word salad. Here goes:
Example: Fully insured STD plan
| Item | Value |
| Income | $570,000 |
| Annual premium | $27,000 |
| Wage replacement | 60% |
| Applicable credit | 15% |
| Tax credit | $4,050 |
- This credit directly reduces the employer’s tax liability.
Deduction vs. tax credit comparison
| Scenario | Taxable income | Tax owed | Tax credit | Final tax |
| Deduction only | $543,000 | $114,030 | — | $114,030 |
| Deduction + credit | $547,050 | $114,881 | $4,050 | $110,831 |
It’s important to understand that employers must choose between a business deduction or the tax credit – they can’t claim both for the same premium amount. In the example shown above, the “Deduction + credit” scenario reflects a higher taxable income because the portion of the premium equal to the tax credit cannot be deducted. That is why the taxable income is $4,050 MORE in the Deduction + credit example:
($543,000 + $4,050 = $547,050)
However, the tax credit directly reduces the final tax owed, resulting in a lower tax bill. This illustrates how, in some cases, the credit may be more financially advantageous than the deduction.
About Paul: Paul Rumore has worked in the Employee Benefits space for over 40 years. He worked for Reliance Standard Life in 1998 when their parent corporation bought Matrix Absence Management. He has worked in the Absence Management Market Place ever since.