What the New Paid Family and Medical Leave Tax Credit Means for You

Changes to a lesser-known tax credit included in the ‘One Big Beautiful Bill Act’ are a win for working family caregivers

Emily Paulin,

AARP

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En español

Published July 28, 2025

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America’s working family caregivers may get better access to paid time off to care for their loved ones under new provisions in the “One Big Beautiful Bill Act,” the sweeping tax and domestic policy law signed by President Donald Trump earlier this month.

The new law expands and makes permanent a federal tax credit that provides incentives to businesses, particularly small ones, to offer workers up to 12 weeks of paid time off for family and medical leave. The paid leave can be used for personal medical issues or to help care for certain family members who have serious health conditions.

The changes are a win for many of the nation’s 63 million family caregivers. Seventy percent of working-age caregivers are navigating the dual responsibilities of paid employment and caregiving, according to a new joint report by AARP and the National Alliance for Caregiving. Balancing those responsibilities often presents significant challenges, with implications for both caregivers’ economic security and their ability to provide quality care. But half of working caregivers don’t have access to paid family and medical leave, the report found.

AARP has long championed policies that expand paid family and medical leave. It pushed Congress to bolster this federal tax credit, which was signed into law on July 4 as part of the “One Big Beautiful Bill Act” (the legislation’s formal title before Democrats filed an amendment to strip out the name).

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“This provision offers meaningful support for working family caregivers and helps create workplace policies that recognize the growing need to balance work and family obligations,” wrote Bill Sweeney, AARP’s senior vice president of government affairs, in a letter to House leadership. The increased applicability and improved flexibility of this tax credit “is a good step forward,” he added.

The “One Big Beautiful Bill Act” includes an array of federal budgetary changes related to taxes, health care, food assistance, border security and more. On the tax front, the legislation extends the tax cuts enacted during Trump’s first term and implements dozens more changes to the tax code, many of which affect older Americans.

Here's what to know about the paid family and medical leave (PFML) tax credit.

What is the PFML tax credit?

This federal tax credit is a business tax credit available to employers that voluntarily offer paid family and medical leave to their employees. To qualify for the credit, the employer must offer certain workers at least two weeks of this type of paid leave annually (adjusted accordingly for part-time workers) and must pay at least 50 percent of the worker’s regular wages during the leave.

Which type of workers does the credit cover?

Businesses can claim this credit for employees who have worked full or part time (at least 20 hours per week) for them for at least six months and who earn under a certain amount. In 2025, that salary cap was $93,000 annually for a full-time worker.

How much is the credit?

The tax credit ranges from 12.5 to 25 percent of the wages paid to employees while they are on paid leave, depending on how generous an employer is with the pay. If a worker gets full pay while on leave, the employer can claim a tax credit of 25 percent of those wages. If the worker gets 50 percent of their usual wages, the credit stays at 12.5 percent.

The credit applies to a maximum of 12 weeks of paid family and medical leave for each employee per year.

What can paid family and medical leave be used for?

This type of leave can be taken for various reasons, including a personal health condition that makes it hard for a worker to perform their job. It can also be taken by a worker to care for a loved one, including a spouse, child or parent with a health condition.

This leave is also available for the birth, adoption or fostering of a child; to care for a service member; and in other situations.

Who benefits from the credit?

Workers will benefit from this tax credit. While the credit is claimed by employers and not directly by workers, the goal is to incentivize businesses to offer some or more paid family and medical leave by having the federal government cover some costs.

The credit is particularly beneficial for employees at small businesses, which don’t tend to offer this type of paid leave. More than 41 percent of employees at businesses with more than 500 employees have access to PFML, while just 20 percent of workers at businesses with fewer than 99 employees have access to it, according to a report by Sen. Deb Fischer (R-Neb.), who has spearheaded efforts to improve federal paid leave policies.

Working family caregivers, an increasing population in the U.S., can also benefit from the credit, since it helps pay for leave for those who need time off from their jobs to care for certain family members with health conditions. Many working caregivers struggle to juggle their jobs and caregiving duties, according to AARP’s recent report.

Of the working caregivers surveyed for the report, almost 1 in 5 said they had to reduce their work hours to meet caregiving duties, while almost 1 in 10 gave up work entirely because of caregiving.

How has the new law changed this tax credit?

This tax credit was set to expire at the end of this year but is now permanent.

Employers can also now offer paid family and medical leave to workers after six months of employment. Previously, the minimum requirement was a year.

When do the updates take effect?

The changes to this tax credit are effective for the 2026 tax year.

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Emily Paulin is an editor at aarp.org who covers nursing homes, health care, and federal and state policy. Her work has also appeared in Broadsheet, an Australian lifestyle publication.