Congressional Republicans are poised to expand an obscure tax credit that helps companies provide paid family leave for their workforces, with plans to make the rarely used provision permanent.
Lawmakers authorized the credit, known as Section 45S, in 2017 as a two-year trial amid calls for paid family leave for working parents — a national standard in much of the world. It has been extended twice and covers as much as one-quarter of a full-time worker’s wages for six to 12 weeks after the birth of a child, or other qualifying family or medical event. It’s available for workers who earn less than $96,000 a year.
Republicans want to make it permanent, as well as expand it to part-time workers. They also want to reduce the worker eligibility requirement from one year on the job to six months.
Section 45S is among several “pro-family” provisions being touted by Republicans in their One Big Beautiful Bill, the sweeping tax legislation that GOP leaders are attempting to get through the Senate this month. The legislation also calls for raising the child tax credit to as much as $2,500; increasing the credits for adoption expenses and employer-hosted day-care centers; and creating $1,000 investment accounts for newborns.
While its architect, Sen. Deb Fischer (R-Nebraska), calls the family leave credit “one of the most important things we can do to support our families,” usage has been low: Only 12,700 businesses claimed the credit in 2021, the most recent year with complete statistics available, filing $207 million in claims.
But a key change in the tax bill would allow companies to claim the credit for insurance premiums, giving them the option to buy short-term disability insurance to cover wages rather than paying workers directly during their absences.
Proponents say the revision would allow more small businesses — those with 500 employees or fewer — to provide the benefit. According to the Small Business Administration, the nation’s 34.7 million small businesses employ about 59 million people.
The insurance provision also would raise awareness about the credit given the industry’s “tremendous sales teams and outreach teams,” said Adrienne Schweer, a fellow at the Bipartisan Policy Center who has worked with Republican lawmakers on crafting the policy. “The government can only do so much to help employers see the value of paid leave,” she added. “When you bring a private sector partner to the table, they can often be a major partner.”
Fischer believes the limited uptake has more to do with the credit’s uncertain lifespan than its utility. “If I was a business owner and it was only a pilot program, I wouldn’t be too anxious to jump into a pilot program,” she said. “A lot of businesses have told me they’re interested but they want it permanent.”
But Rep. Jimmy Gomez (D-California) — whose amendment to expand the leave credit to as much as 75 percent of a worker’s pay for small businesses and 50 percent for large ones failed on a party-line vote — believes the credit is insufficient and ineffective. “The Republicans like to claim that they’re the party of family values, but they never pass anything that actually values families,” he said. “It’s not widely available. Companies are not using it. … I’m willing to work with them on these issues. I think they need to put more meat on the bones.”
He believes a social insurance program — like those in California and 11 other states, where parental leave is covered by a payroll tax, not employers — is the better option.
The Congressional Budget Office predicts the enhanced credit will cost $5 billion over the next decade, which would represent more than twice as many claims as present usage, but still pales in comparison to many vastly more popular credits.
“It has like no money attached to it, because nobody takes it up,” University of Utah professor Elena Patel said. Even with the new applicability to insurance plans and to more workers, Patel predicted that employers would find the cost of providing paid leave too high. “I just don’t think there’s enough dollars on the table.”
Elaine Read only learned of the credit this month. The owner of Xocolatl, an Atlanta-based chocolate company with 10 full-time employees, she first gave one of her workers three months of paid family leave five years ago. She has since done the same for a second worker and expects to authorize a third one soon.
She has wanted to expand the benefit — to allow workers to care for an ailing relative, for example, or make it available to her seven part-time employees — but has worried about the expense.
“That credit would open up another window,” she said. “If there was more tax relief for that, we could take advantage of that. It might make it easier for us.”