AICPA seeks clarity on revamped paid family leave credit rules

The federal tax law passed in 2025 made the paid family and medical leave credit in Sec. 45S permanent and made substantive changes to enhance the credit and expand its availability. In a letter to Treasury and the IRS, the AICPA requested guidance and offered recommendations to update the existing guidance on matters emerging from revisions to Sec. 45S.

“Currently, there is no guidance on the changes to the credit,” an AICPA news release said.

Under H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, Sec. 45S makes the credit available to a broader group of employers. However, employers must ensure that their written leave policies are compliant during the first full year that the amended Sec. 45S changes are in effect (2026). Sec. 45S(c) defines “eligible employer” as an employer with a written policy that meets the requirements to claim the credit. In general, the written policy must provide a certain level and duration of coverage for all “qualifying employees.”

The enhanced credit allows “more employers to offer paid family and medical leave as a benefit to their employees,” Kristin Esposito, director–Tax Policy & Advocacy at the AICPA, said in the release. “The purpose of our letter is to help practitioners obtain clarity on how to implement the changes to the credit.”

The AICPA letter requests guidance and offers recommendations to update existing guidance on Sec. 45S in the following areas: 

Calculating the credit

• Allow employers to base the credit on both wages paid and premiums paid.
• Clarify the method of calculating the premium-based credit.
• Clarify how to determine the applicable percentage for an aggregated employer.
• Provide a transition period regarding the effective date of employer written paid family and medical leave policies.

Employee considerations

• Permit an eligible employer to choose to cover employees after six months of employment through applicable plan documents.
• Allow the use of safe harbors when determining an employee’s compensation.
• Clarify how to determine if an employee is a qualifying employee if they worked for the employer for less than one year.
• Clarify treatment of an employee’s prior service with regard to an employer’s written paid family and medical leave policy.
• Permit exclusion of certain employees from an employer’s written paid family and medical leave policy.

Eligible employers

• Clarify eligible employer status when legally distinct entities have different industry classifications.
• Clarify application of the credit to employers aggregated with non-U.S. employers.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.