Can insurance brokers help their clients qualify for tax savings with better benefits?
As an insurance broker, you don’t have to be a tax expert. But it helps to understand the tax rules and regulations surrounding the benefits you sell, including state-mandated PFML and other paid leave and short-term disability insurance.
Last year’s legislation created quite a learning curve for business owners and tax professionals, alike. The One Big Beautiful Bill Act (OBBBA) introduced many changes to tax code, while making some elements of the previous Tax Cuts and Jobs Act permanent.
This year, the IRS introduced some small, but significant, clarifications for the 2026 tax year. Insurance brokers should understand the legislation as it pertains to the benefits they sell.
The IRS has issued detailed guidance for employers claiming the tax credit for non-mandated PFML benefits.
Important: Employers can’t claim the credit for providing mandated PFML benefits in line with their state’s requirements.
Employers in states without mandatory PFML programs may qualify for credits for providing voluntary PFML. Employers in states with mandated PFML may qualify to claim credits for benefits provided beyond the required amounts. In either case, federal eligibility requirements apply.
IRS Issues Detailed Guidance on Employer Tax Credits for PFML
OBBBA made the existing PFML tax credit for voluntary PFML programs permanent. Beginning with the 2026 tax year, it also expanded the credit to include qualifying employer-paid insurance premiums.
This summer, the IRS issued additional guidance on who qualifies and how employers can claim the credit. This includes an option to claim the credit on premiums paid, even if no employees took leave that year. Previously, employers could only calculate the credit using wages they paid employees while those employees were on qualifying leave.
Here are the additional points brokers should know:
- Tax credit range is 12.5% to 25% depending on the design plan
- Insured employer-paid short-term disability premiums may qualify for the PFML tax credit. The credit can apply to each benefit that supports a qualifying reason for leave separately.
- Eligible employees must customarily work at least 20 hours per week, which means that some part-time workers may qualify. Other employee eligibility requirements also apply.
- Previously, eligible employees required at least 12 months of service. Now, employers can elect to shorten that requirement to six months.
How Employers Can Calculate Credits
Beginning with the 2026 tax year, employers have two choices to calculate the general business tax credit: They can base the credit on qualifying wages paid to employees during leave or on qualifying employer-paid insurance premiums that fund leave benefits.
The tax credit supports both insured and self-insured plans.
If employers combine insured coverage (STD, for example) with additional self-funded benefits (such as Paid Parental Salary Continuation), the employer can use the premium method for qualifying insured coverage and the wage method for qualifying benefits paid from its own funds. However, it can’t claim the credit twice for the same funded benefit.
Eligible employers purchasing voluntary PFML insurance—including qualifying coverage above state mandates—can now use the premium-based method to calculate the tax credit.
Client Education Opportunities for Brokers
In the absence of a national paid family and medical leave program, the tax credit offers powerful incentives for employers to provide PFML in states where it isn’t mandated. It may also encourage employers to enhance their PFML benefits beyond state requirements.
State-mandated leave can count toward meeting the requirements for employer eligibility. However, employers can’t include the cost of those mandated benefits when calculating the credit. Employer-paid benefits above state requirements may qualify, subject to federal eligibility rules.
Action Items for Employers
Brokers can help their clients by making them aware of these changes and exploring whether voluntary PFML or a private plan with better benefits than their state requires is right for them. Clients should also be encouraged to speak with a tax professional to see if they can benefit from the credit.
Brokers should encourage their clients to:
- Document employer vs. employee contributions and retain records of employer-paid premiums or qualifying leave wages.
- Work with their carrier and tax advisor to distinguish qualifying premiums from premiums funding mandated or other nonqualifying benefits.
- Consult with their broker and tax advisor to include employee benefits as part of a comprehensive tax strategy for 2026.
Have Questions?
At The DBL Center, we’re here to guide brokers through all things related to disability, benefits, and paid leave so you can better serve your customers.
As more states roll out mandatory paid family and medical leave programs, we can help you with compliance, enhanced benefits, and saving your clients money through a private plan.
Reach out now to position your brokerage for a strong 2027.
This article is for informational purposes only and does not constitute tax or legal advice. Eligibility for the federal PFML tax credit depends on applicable requirements and the employer’s specific circumstances. Employers should consult their tax advisors before claiming the credit or changing their benefits or contribution arrangements.
