The IRS explained the paid-leave premium method. It did not expand worker eligibility

By Cumulant Research | August 5, 2026.

The answer is no: the IRS did not expand which workers pass Section 45SSection 45SThe federal tax-code section that offers eligible employers a credit for qualifying paid family and medical leave wages or insurance premiums. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)'s eligibility tests on August 5. [Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf) explains how employers may calculate the credit from paid-leave insurance premiums, how they must separate eligible from ineligible coverage and how they may combine the premium and wage methods without claiming twice for the same benefit.

Congress had already made the consequential choices. Section 70304 of [Public Law 119-21](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf), enacted on July 4, 2025, made the credit permanent, authorized the premium methodpremium methodThe Section 45S calculation based on the qualifying portion of paid-leave insurance premiums paid or incurred by an employer. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf), created an optional six-month tenure threshold, added a 20-hour customary-workweek minimum and amended the compensation test. Those changes apply to taxable years beginning after December 31, 2025.

Think of worker eligibility as a gate and the tax calculation as the turnstile behind it. Congress set the gate's dimensions. The IRS notice explains how an employer with an insurance policy moves a qualifying cost through the turnstile. It does not move the gate. The [current text of Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S) still contains the tenure, compensation and hours tests enacted by Congress.

This distinction matters because saying that the IRS expanded eligibility would assign the legal change to the wrong institution. The notice itself describes the six-month election and the 20-hour minimum as amendments made by the 2025 law, then turns to its own subject: guidance for the premium method. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

Under the wage methodwage methodThe Section 45S calculation based on qualifying wages paid while employees are on family or medical leave. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf), the credit is based on qualifying wages paid while an employee is on family or medical leave. Under the premium method, the base is the qualifying share of paid-leave insurance premiums paid or incurred during the employer's taxable yeartaxable yearThe annual accounting period for which an employer calculates and reports federal taxes.. Congress authorized both methods; the notice supplies the operating rules for the second one. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S) [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

The notice calls eligible insurance protection creditable coveragecreditable coverageThe part of an insurance policy funding a benefit that would qualify for the credit if it were paid under the wage method. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf). A premium is creditable only to the extent that it funds a benefit that would have qualified under the wage method. Coverage for an ineligible leave purpose, a nonqualifying worker, a benefit that would not count as Section 45S wages, or leave required or paid by a state or local government does not generate a premium-method credit. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

Many policies will not divide themselves neatly along those lines. If one payment funds qualifying and nonqualifying coverage, the notice labels it a blended premiumblended premiumA single premium that funds both creditable and noncreditable coverage. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf). The employer may use a reasonable allocation method, but the method must use objective criteria, fit the policy's terms, be supported by contemporaneous recordscontemporaneous recordsDocuments created at or near the time of a calculation or transaction rather than reconstructed much later. and be applied consistently during the taxable year and across businesses treated as one employer. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

The premium method breaks the old link between the annual credit base and the amount of qualifying leave actually taken. Section 45S now bases this method on qualifying premiums and says the payment rate used to calculate the credit percentage is determined without regard to whether qualifying employees took leave during the year. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)

The [Congressional Research Service](https://www.congress.gov/crs-product/R48611) summarizes the result directly: employers may apply qualifying premiums toward the credit regardless of whether an employee claimed leave under the policy that year. That does not eliminate the other conditions. The employer must still be eligible, and the premium must still fund coverage for workers and benefits that satisfy Section 45S. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

An employer may also use the wage method for some leave and the premium method for other leave. It may not claim both methods for the same funded benefit. If an insured benefit and the employer's general funds each pay part of one leave benefit, the notice permits the corresponding portions to be handled under different methods. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

A qualifying employeequalifying employeeA worker who passes Section 45S's tenure, preceding-year compensation and customary-hours tests. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S) must satisfy three statutory tests. The worker must have been employed for at least one year unless the employer elects the shorter threshold of at least six months. The worker's preceding-year compensation must fall below a tax-code ceiling and is evaluated on an annualized basis with a pro-rata rule for part-time employees. The worker must also be customarily employed for at least 20 hours per week. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)

The shorter tenure rule is not automatic. It is an employer electionemployer electionAn optional tax choice made by an employer, such as choosing the six-month rather than the one-year tenure threshold. [Public Law 119-21](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf). A worker with seven months of service therefore does not become qualifying merely because the statute permits a six-month threshold; the employer must choose that treatment and the worker must pass the compensation and hours tests as well. [Public Law 119-21](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf)

Passing those worker tests is only one layer. An eligible employer generally needs a written policy providing at least two weeks of annual paid family and medical leave for qualifying employees who are not part-time, proportionate leave for qualifying part-time employees and a payment rate of at least 50 percent of normal wages. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)

Notice 2026-28 does not supply a new interpretation of the amended compensation language. That is one reason a headcount based only on tenure and usual hours would be incomplete: it would omit a statutory test and would also lack information about each employer's election and written policy. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf) [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)

Section 45S is an employer credit. It tells an eligible employereligible employerAn employer with a written paid-leave policy that meets Section 45S requirements, including minimum leave and wage-replacement rules. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S) which costs may reduce its federal tax liability. It does not direct the federal government to pay benefits to an individual worker, and Section 45S expressly says that failing its employer-policy requirements does not create a penalty or liability beyond loss or recapture of the credit. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S)

That produces several layers between statutory worker eligibility and a benefit reaching a household. The employer must offer a qualifying written policy, choose whether to claim the credit, choose whether to use the six-month election, buy or maintain relevant insurance if using the premium method, and provide coverage that survives the notice's allocationallocationThe process of dividing a blended premium between the portion eligible for the credit and the portion that is not. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf) rules. A worker then must have a qualifying reason for leave and satisfy the policy's applicable terms. The statute and notice establish the tax rules; they do not demonstrate that these events occurred. [Current Section 45S](https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section45S) [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

Treasury's published historical table covers business returns with tax years ending from July 2020 through June 2021. It reports the number of claimant businesses and credit dollars by business revenue category and broad industry group. It does not report covered workers, workers taking leave, benefit recipients or weeks of paid leave. [Treasury claims table](https://home.treasury.gov/system/files/131/Section-45S-Claims-Tables-10172023.pdf)

Cumulant's sums produce 1,230 claimant businesses and $101 million in credits in the table. Businesses with more than $1 billion in revenue accounted for 180 of those claimants but $89 million of the credit dollars. Those figures describe where reported claims appeared; they cannot reveal how many workers were insured or received leave. [Treasury claims table](https://home.treasury.gov/system/files/131/Section-45S-Claims-Tables-10172023.pdf)

A credible evaluation needs more than the total value of tax credits. To test whether participation expanded, researchers would need counts of claimant employers, qualifying policies and covered workers before and after implementation. To test whether employers merely changed calculation methods, they would need wage-method and premium-method claims reported separately alongside stable measures of policy coverage. The current Treasury table does not provide those worker or method-level fields. [Treasury claims table](https://home.treasury.gov/system/files/131/Section-45S-Claims-Tables-10172023.pdf)

Administrative evidence will matter too. The IRS specifically requested comments about blended-premium allocation, voluntary state-facilitated programs and the exception to the rule that connected businesses are treated as one employer. Those requests identify unresolved implementation questions; they are not proof that the questions will deter participation. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf)

The narrow conclusion is therefore legal rather than economic. On August 5, the IRS made the premium method easier to apply by describing which coverage qualifies, how mixed premiums may be divided and how the two calculation methods interact. It did not expand the statutory pool of qualifying employees. Whether the clarification eventually broadens paid-leave coverage remains an empirical question for future claims, policy and worker data. [IRS Notice 2026-28](https://www.irs.gov/pub/irs-drop/n-26-28.pdf) [Public Law 119-21](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf)