The New Employer Tax Credit Most Companies Don’t Know About

‍TLDR: Your company could be leaving thousands of dollars on the table by not maximizing, or using, the Employer Tax Credit. ‍

While there has been no federal movement towards a national paid family and medical leave program, we did see expansion of the Employer Tax Credit this year, which makes it easier, and more affordable, for companies to enact family-friendly policies. 

In July 2025 the One, Big Beautiful Bill was signed into law and buried within the hundreds of pages is Section 45S: the Employer Tax Credit for Paid Family and Medical Leave. The credit has been made permanent and its eligibility requirements for employers have been lessened, in an effort to encourage use.

Surprisingly, many HR and finance teams are finding out about the credit for the first time when they meet with us. While it may be common knowledge in our industry, we realize that many employers may be unintentionally not claiming the credit, or not designing a paid parental leave policy to maximize the credit available to them, and losing out on tens of thousands of dollars.

What is the employer tax credit?

The employer tax credit offers up to a 25% tax credit for eligible employers who offer paid family and medical leave to their employees. The federal tax credit scales based on how generous an employer’s wage replacement percentage is: the more generous the plan, the more generous the eligible tax credit. 

In general, the section does outline base requirements for employers, including minimum and maximum length, policy restrictions, and employees who may be excluded based on their earnings.

Are you an eligible employer?

Most employers are eligible to claim the credit, regardless of industry or company size. Qualifying eligible employees can be full-time or part-time (with part-time employees receiving a prorated leave and/or pay). All employers should check with their tax team to determine eligibility.

Paid leave is now more affordable than ever, driving real ROI

The permanence of section 45s now makes paid leave a policy employers can continue to offer, and to expand. The ROI of paid parental leave is near immediate and drives value for every organization, from micro-startups to SMBs:

• For finance teams: the credit provides a reduction in tax liability, freeing up much needed budget for other investments, and helping offset the cost for paid parental leave in states without a Paid Family Leave (PFL) program‍
• For HR teams: you add a much-needed and requested employee policy, differentiating yourself in the market, setting the standard of care for your employees, and encouraging tenure. When rehiring costs continue to climb in tight markets, reducing turnover is key.

Download the Employer Tax Credit Fact Sheet

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