New Treasury guidance lets employers claim tax credits for family leave insurance premiums ahead of the midterms
Photo: Gage Skidmore, Public domain, via Wikimedia Commons
The U.S. Department of the Treasury will issue new guidance this week that widens a federal tax credit for employers offering paid family and medical leave, a move the White House hopes to highlight ahead of November's midterm elections.
Treasury Secretary Scott Bessent and House Speaker Mike Johnson are set to travel outside Phoenix, Arizona, to promote the policy alongside Representative Juan Ciscomani, an Arizona Republican considered one of the chamber's most vulnerable incumbents. Administration officials are rallying behind candidates facing tough Democratic challengers in the fall.
The guidance builds on a tax credit first created in 2017 under President Donald Trump's first-term tax law. Under the existing rules, employers can claim a credit if they offer at least two weeks of family and medical leave paying at least 50% of an employee's wages, but only if they paid those wages directly. Many businesses instead purchase insurance policies to cover leave costs, and until now those premiums didn't qualify.
New guidance broadens credit eligibility
The updated guidance allows employers to claim the credit when they pay insurance premiums rather than wages directly, according to three people familiar with the plans who were not authorized to speak publicly. The change is expected to make the credit accessible to a wider range of employers, including smaller businesses that rely on group insurance products rather than self-funded leave programs.
The policy sits within Trump's broader tax and immigration law, the One Big Beautiful Bill Act, which Republicans plan to use as a centerpiece of their midterm messaging even as the party has lost ground on economic issues. A Reuters/Ipsos poll released this week found voters trust Democrats over Republicans on the economy by a narrow margin, with a similar split on the generic congressional ballot.
Bessent framed the change as a workplace benefit rather than a political one.
“Hardworking Americans should not have to choose between caring for a loved one and earning a paycheck,” Bessent said in a statement.
White House spokesman Kush Desai described the guidance as a win for working parents.
Insurance premiums now count toward the credit
The practical effect for HR leaders is a lower-friction path to claiming the credit. Employers who have avoided setting up qualifying leave programs because self-funding wages during leave strained cash flow may now find purchasing insurance a more attractive option, since premium payments will count toward the credit calculation. That could accelerate adoption among small and mid-sized employers who have historically lagged larger companies on paid leave benefits.
The change also lands against a backdrop where most workers say paid caregiving leave is the benefit they value most from an employer, even as many still lean on general paid time off rather than dedicated leave policies to cover caregiving needs.
The U.S. remains the only member of the 38-nation Organisation for Economic Co-operation and Development (OECD) without a national paid family and medical leave mandate, a gap Pew Research Center has documented as unique among the world's advanced economies. That absence of a federal requirement is part of why the tax credit route, rather than a mandate, has been the preferred lever for both the 2017 and 2026 policy changes.
HR teams evaluating whether to adjust their leave offerings should also revisit how the credit interacts with broader entitlements. Employers still building out policy language may want to review how FMLA obligations differ from state paid family and medical leave programs before finalizing any insurance-based leave plan, since the federal credit doesn't replace state-level compliance requirements.
Treasury hasn't yet published the formal guidance document. Employers looking to claim the expanded credit will need to wait for the written rules before making changes to existing leave insurance arrangements.
