Impact of State and Local Leave Laws on Sec. 45S Paid Leave Tax Credit

The IRS has now offered guidance on the IRC Section 45S paid family and medical leave tax credit via Notice 2026-28. The notice also offers clarity on the impact of state and local leave laws. A patchwork of state and local laws may now require employers to offer paid time off for reasons that would also qualify the employer for the Section 45S federal tax credit. Leave mandated by state or local law can be counted in determining whether the employer has offered enough leave to qualify for the credit beginning with the 2026 tax year. However, wages or insurance premiums paid because of a legal requirement are excluded when the employer calculates the federal credit. Premiums paid for by a state or local government are also excluded. Business clients with locations in multiple states should be aware of the applicable leave laws and how they may impact the Section 45S credit. For more information on the paid family and medical leave credit, visit Tax Facts Online. Read More: Link to Q3512.