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What’s in the Bill: Paid Family and Medical Leave Credit Extension and Enhancement Act

On January 29, 2024, Senators Deb Fischer (R-NE) and Angus King (I-ME) proposed crucial reforms to the 45S Employer Credit for Paid Family and Medical Leave (45S) that would make the credit more durable and help businesses provide paid leave benefits to more workers. Originally enacted in the 2017 Tax Cuts and Jobs Act, the bipartisan 45S tax credit was the first federal policy to support paid family and medical leave in the United States.

Amid an ever-changing economy and tight labor market, paid family and medical leave can importantly encourage workers to stay in the labor force, support household finances, and help businesses compete for workers. A 2023 BPC-Artemis poll found that many prime-age adults (defined here as those aged 20-54 who are not full-time students) are not currently in the workforce due to caregiving responsibilities, especially women. Moreover, when compared to a wide range of potential workplace benefits, prime-age adults who are not in the labor force say that paid family and medical leave is about as important as compensation when considering starting or returning to the workforce.

As momentum grows to find innovative federal and state solutions to offer paid family and medical leave, enhancing the 45S tax credit is a critical next step to expand access to employer-provided paid family leave benefits. Enhancing the 45S tax credit by making it permanent, allowing employers to apply it toward insurance premiums, and expanding the base of eligible workers could further help more employers provide paid leave to hardworking American families.

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Key provisions in Sens. Fischer and King’s new bill, which parallels many of BPC’s past recommendations include:


  • Making the tax credit permanent. The 45S tax credit was initially enacted as a two-year pilot program through 2019 and subsequently extended twice on a temporary basis. To maximize the tax credit’s effectiveness, employers need confidence that the tax credit will be available to them for years to come. Making the tax credit permanent provides employers with certainty about its future and further incentivizes them to use it to provide or expand paid leave benefits.
  • Covering leave mandated by state and local government. Currently, 13 states, the District of Columbia, and several other cities and counties, have established mandatory paid family leave programs. Despite being required to participate in these programs, employers in those places are currently unable to claim the credit to offset some of their costs. Moreover, employers who operate and provide leave in both mandated and non-mandated states are ineligible to claim the tax credit, which disincentivizes providing equitable access to leave benefits for all workers. Changes proposed in this bill would rectify this issue, allowing businesses to claim the credit for leave provided in non-mandated states, along with leave provided over and above what is mandated by state and local programs.
  • Making the cost of obtaining paid family leave insurance eligible for the tax credit. While many employers provide short-term disability benefits, states recently began enacting laws that enable employers to obtain paid parental and family caregiving leave as a private insurance product. However, under current law, employers who use an insurance product to provide paid family leave are ineligible to claim the credit. This bill would amend the 45S tax credit by allowing employers to apply it toward the premiums (up to 25%) they pay for paid family leave private insurance products.
  • Lowering the minimum employment tenure requirement. Under current law, workers must be employed by their current employer for a minimum of 12 months in order for employers to be eligible to claim the 45S credit. However, according to recent data from the Bureau of Labor Statistics, nearly one quarter of workers (24%) have been with their employer for one year or less. As such, employers cannot claim the credit for a large portion of their workforce. To improve access to the credit, the bill gives employers the option to reduce the minimum tenure threshold from 12 to six months.
  • Requiring educational outreach from relevant federal agencies to increase tax credit awareness. Despite being available for nearly five years, many employers are still unaware of the 45S tax credit. Disseminating educational materials to all employers to help them understand eligibility and coverage requirements can help increase awareness and uptake. The bill requires the U.S. Small Business Administration and the Internal Revenue Service to conduct targeted outreach, education, and technical assistance on the tax credit to employers and other relevant partners.

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