Do you have to offer family and medical leave to your employees? Does it have to be paid? Do you get a tax break for this? These and other questions are complicated by the fact that the rules are different on the federal level versus the state and local level. And the One Big Beautiful Bill Act made changes to the federal tax credit. There’s also considerable confusion between this type of leave and other types of pay replacement for illness or other reasons. Let’s try to sort things out.
What to know:
Does federal law require family and medical leave?
The Family and Medical Leave Act gives eligible employees 12 workweeks of leave time in a 12-month period for the birth or adoption of a child, to care for a spouse, child, or parent who has a serious health condition, or because of a personal serious health condition, or exigency arising from the fact that the employee’s spouse, child or parent is a covered military member on active duty. There’s a 26-week leave period related to the care of servicemembers. It only applies to private employers that employ 50 or more employees for at least 20 weeks in the preceding year. It does NOT require that the leave be paid leave.
Which states mandate paid family and medical leave?
Currently, California, Colorado, Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, Minnesota (effective January 1, 2026), New Jersey, New York, Oregon, Rhode Island, and Washington have paid family and medical leave insurance programs to cover the costs of the paid leave. The terms of each state’s program vary considerably…how it’s funded (employer, employee, or both), length of leave, the reasons for the leave, etc.
Employees cannot be terminated because they avail themselves of this benefit.
What’s the difference between paid family and medical leave versus sick pay?
Family and medical leave and sick pay are types of time off for work, but there are important differences. For example, on the federal level there’s no mandatory sick leave—paid or unpaid, but there is mandatory unpaid leave under the FMLA (above).
The DOL has a chart comparing certain sick pay with FMLA—federal and state.
As of 2025, about half the states and the District of Columbia mandated some paid sick leave. There’s a map you can click on it to see whether this applies in your location.
What’s the difference between paid family and medical leave and other types of illness or injury-related leave?
Employees may have their wages, or part of them, replaced if they become ill or injured. Some options:
- Short-term disability—for any personal illness, injury, pregnancy, or any other condition that prevents an employee from temporarily working
- Workers’ compensation—only for job-related illness or injury
There are no federal laws on short-term disability or workers’ comp; these are state-level laws to provide some wage replacement if there’s a qualifying event (e.g., a job-related injury that triggers workers’ comp). The rules vary considerably according to location. For example, only a handful of states have short-term disability programs. Find a list of state laws on short-term disability here.
Unlike FMLA laws, there are usually no job guarantees for these other wage-protection programs.
What is the federal tax credit for paid family and medical leave?
If employers pay employees who take family and medical leave, there is a tax credit ranging from 12.5% to 25% of wages during leave time. But the credit only applies for an “eligible employee.” In 2026, this is someone who did not earn more than $96,000 during 2025.
Some employers provide paid leave through insurance for this purpose. Starting in 2026, the credit can be based on insurance premiums.
Note that prior to 2026, no credit could be taken if state law required paid leave. This changes for 2026. The credit applies without regard to state mandatory leave programs.
Find more details in the instructions to Form 8994. But note that these instructions reflect the rules through 2025; they don’t include changes for 2026 and beyond.
Final thought
As a small business owner, you may not be required to offer family and medical leave—paid or otherwise. But it’s something to think about. There are benefits to employers for offering paid leave, such as attracting and retaining valued employees. And it may not be as costly to employers as expect; weigh the cost of paid leave against the high cost of turnover. But most importantly, it’s the right thing to do.
As Sir Richard Branson said: “Take care of your employees and they will take care of your business. It’s as simple as that.”
Find more helpful information concerning employee benefits in this list of blogs.
