Beyond tax credits: A path to meaningful paid family leave

Paid family leave has been on the national policy agenda for decades and continues to receive widespread public support. However, the One Big Beautiful Bill Act (OBBBA) passed by the House last month does little to increase access to paid leave. Instead, it tweaks a little-known and largely ineffective tax credit, doubling down on a relatively new effort to expand access through optional private insurance policies.

These optional policies—and the tax credit that aims to support them—leave workers at the mercy of their employers’ choices and cannot guarantee paid leave for those long excluded from the system. Fortunately, lawmakers have other choices.

Tax credits have already been tried

Congress has previously offered small, optional tax breaks to encourage paid leave. The 2017 Tax Cuts and Jobs Act’s (TCJA) established a modest tax credit for employers who choose to provide paid family or medical leave. This credit partially offsets the wages that employers pay to lower-compensated workers on leave and only applies when the leave is an extra benefit the employer provides; it cannot be claimed for leave required by state or local laws.

The tax credit was intended to motivate employers to offer paid leave to low-wage employees, who are disproportionately less likely to have access to these benefits.

But its success has been limited, likely because the tax credit offsets, at most, 25% of the employer’s cost of providing paid leave—a modest share that doesn’t meaningfully reduce the cost of these policies. In 2021, just 490 corporations claimed $112 million in paid family leave credit. Furthermore, surveys show that tax credits would influence fewer than 40% of employers to offer paid leave, suggesting that businesses that claim the credit are already offering the benefit.

Some states are trying optional private insurance policies

Recently, Republican-led states have adopted a new approach: Create voluntary insurance markets from which employers can buy paid family leave policies from private insurers. Virginia was the first to do this in 2022, and six more southern states have since followed. So far, just one insurance carrier has publicly confirmed that they will offer such a policy in Virginia, and there is no public data showing how many employers are participating.

The House bill goes all in on this new approach by expanding the TCJA tax credit to include premiums paid to private insurers for stand-alone paid family leave policies. In theory, this expansion will help employers afford the cost of voluntary insurance products. In practice, in the seven states that have opened the door to this approach there is no evidence that paid leave policies are being widely adopted, or that this tax credit expansion will meaningfully increase access to paid leave.

Many other states show that mandated paid leave improves the well-being of working families

In contrast, state-mandated paid family leave programs—now in place in 13 mostly-Democratic states and the District of Columbia—have expanded access for workers left out of voluntary approaches. Research shows that these programs improve maternal and infant health while supporting women’s employment. Funded by small payroll taxes, they operate like social insurance, ensuring that workers can take time off to care for themselves or their families with limited financial risk. Unlike voluntary insurance-based approaches, these mandatory programs provide a reliable safety net that catches all workers. 

Federal inaction has left working families behind

Without federally mandated paid family leave, workers have been navigating a confusing patchwork of state and local laws, leading to significant disparities. Access to paid leave is the lowest among workers with the greatest needs, including those with lower incomes, less education, and part-time employment.

For instance, only 32% of workers earning less than 100% of the Federal Poverty Level (FPL) have access to any paid leave, compared to 81% of workers earning more than 400% of the FPL. Among women aged 18 to 34—the most likely to give birth—just 45% of women have access to paid leave to care for a new child, the lowest of any adult age group.

These gaps deepen existing inequalities and leave many workers without critical support. Decades of research and evidence from states with robust, mandated paid family leave programs suggests that a comprehensive, national solution to expand access to all workers can work.

Family leave policy can move beyond tax credits

As the Senate weighs the House tax bill, it is clear that expanding tax credits for voluntary employer-based benefits will not be enough to assure paid leave access to all workers. Lawmakers have many proposals or legislative options they could consider. Moving beyond tax credits, toward a paid family leave system that is accessible, fiscally responsible, and equitable for all workers is possible.