Treasury has written the first guidance on the insurance premium route to the paid leave credit, and four of the seven questions in it are answered no

Seven questions. Four of the answers are the word no.

That is the shape of Notice 2026-28, issued on Wednesday, which is the first guidance Treasury and the Internal Revenue Service have written on the new way to claim the employer credit for paid family and medical leave. Section 45S of the code used to work one way: an employer paid wages to somebody on leave, and claimed a credit on those wages. Since last year's amendments it works a second way as well. An employer that carries an insurance policy funding that leave may instead claim the credit on the premium.

The notice is nine pages, and most of it is about what the premium does not buy.

The four refusals

A premium counts only to the extent it funds a benefit that would itself have earned a credit under the wage method. So the notice works through the ways a policy can be wider than the statute, and each time the answer is the same.

A premium is not creditable to the extent it covers leave that is not paid family or medical leave as section 45S defines it. Not creditable to the extent it covers leave payable to somebody who is not a qualifying employee at the time the premium is paid. Not creditable to the extent it covers leave required by state or local law, or paid for by a state or local government. Not creditable to the extent the benefit it funds would not be wages for these purposes.

Anything left over is what the credit runs on.

Blended policies get split

The practical difficulty follows immediately. Most insurance covers more than one thing.

Where a single premium buys both creditable and non-creditable coverage, the notice requires an allocation, and sets three tests for it. The method must be reasonable and consistent with the terms of the policy. It must rest on objective criteria and on records made at the time. And it must be applied the same way for the whole tax year and across every person treated as a single employer under the aggregation rule.

That aggregation rule is itself new. It used to reach persons treated as a single employer under section 52. It now reaches persons treated as a single employer under section 414, with an exception for an employer that can establish a substantial and legitimate business reason for having no written policy, and the notice asks for comments on what such a reason looks like.

Both methods, one instance of leave

An employer may use the wage method for some leave and the premium method for other leave. What it may not do is claim twice for the same leave.

The notice gives the case that will come up. If an employer claims the credit on a premium, it cannot also claim the credit on benefits that premium later funds, whether by reimbursement or otherwise. Where an instance of leave is paid partly out of the policy and partly out of the employer's own money, the premium credit covers the first part and the wage credit covers the second.

Separately, section 280C denies a deduction for the slice of premiums equal to the credit claimed on them, which mirrors the treatment wages already had.

Two names for one statute

Worth noting for anyone filing a comment. The IRS news release announcing the notice calls the underlying legislation the Working Families Tax Cuts. The notice itself calls it the One, Big, Beautiful Bill Act.

Both mean Public Law 119-21, enacted 4 July 2025, and the operative provision in either telling is section 70304. The release adds two figures the notice does not state: the credit runs from 12.5 percent to 25 percent of qualifying wages, for up to 12 weeks of leave in a tax year.

Employers may rely on the notice for tax years beginning after 31 December 2025 until the proposed regulations arrive. Comments are due by 16 October, under docket IRS-2026-0496.