Faithful readers of Engage publications will know how often we have cheered on Senator Deb Fischer (R-NE) and her years of hard work to make the 45S credit a permanent part of the federal tax code. We are thrilled to share that her tax credit is now law. It is the first federal credit designed to help small employers offer paid family leave to working families, and it has finally crossed the finish line.
When the federal government does something good and a benefit is sitting there for the taking, the people it was written for too often never hear about it. We see an opportunity to help fill that gap. Our Thread newsletter has carried this work in policy circles for years, and now we want to share impactful policy news directly with small business owners and their employees and families.
Later this year, we will launch the inaugural issue of the Engage Small Business Network, a newsletter offering written in plain language intended to “de-wonk” and inform small business leadership as well as those working in this dynamic sector. To collaborate with Engage on this effort, I recruited Jason Kanter, who has a tremendous knack for deciphering legislative text and making the jargon understandable and actionable.
We hope you will share the following guide with any small business owners in your life, and if you would like to assist Engage in shaping the newsletter by suggesting issues or stories, please get in touch. According to the Small Business Administration, 36.2 million small businesses operate in the United States, with women owning 43 – 47 percent of all small businesses while representing 46.9 percent of the workforce. Engage celebrates the entrepreneurship of American women and the massive impact they contribute to our national economy.
This document is for informational purposes and does not constitute legal or tax advice. It reflects prior IRS guidance (e.g., IRS Notice 2018-71) and a legislative analysis of changes in the 2025 reconciliation law.
The Family and Medical Leave Act (FMLA) provides leave for four reasons: (1) Parental leave for the birth and care of a newborn child, or placement of a child for adoption or foster care; (2) Caregiving leave to care for a spouse, child, or parent with a serious health condition; (3) Medical leave for the employee’s own serious health condition that makes them unable to perform their position; and (4) Military-related leave for qualifying exigencies and military caregiver leave.
No. Employees do not need to be FMLA‑eligible. The 45S credit uses FMLA-qualifying reasons, but it does not require the other FMLA eligibility rules to be met (12 months of service, 1,250 hours, or the worksite-size threshold). The employer must include “non-interference” language in its written policy.
Employees who earn more than $96,000 in 2026 are not qualifying employees for purposes of calculating the 45S credit. These higher-paid employees must still receive the same minimum leave standards that apply to all other employees under the written plan. Their wages simply do not count toward the credit.
State PFML benefits do not count toward the 45S credit, and state eligibility rules usually differ from 45S eligibility. Amid this state patchwork, employers must still ensure that all qualifying employees receive at least the 45S minimum standards under the written plan.
Yes. In PFML states, employers may provide topup payments above the state benefit if they find it administratively feasible, and those employer-paid amounts can count toward the 45S credit. State-mandated benefits never generate the credit, but under the 2025 reconciliation law the employer may aggregate the state benefit and the employer’s topup to meet the 45S requirement that qualifying employees receive at least 50% wage replacement.
Awaiting new guidance from the U.S. Department of the Treasury at the time of publication. See full FAQs on the Engage website for detail on part-time workers, state PFML programs, short-term disability insurance, recordkeeping, and how to claim the credit.
