Printable Form 2026

IRS Publication 5327 – IRS Forms, Instructions, Pubs 2026

IRS Publication 5327 – IRS Forms, Instructions, Pubs 2026 – Employers seeking to attract and retain talent while reducing their federal tax burden should understand IRS Publication 5327 and the valuable employer tax credit for paid family and medical leave. Originally introduced in late 2018 as a “new” benefit under the Tax Cuts and Jobs Act, this credit—formally known as the Section 45S Employer Credit for Paid Family and Medical Leave—remains one of the most powerful incentives for businesses offering paid leave beyond legal minimums.

This SEO-optimized guide explains everything in Publication 5327, updates it with current IRS guidance (as of February 2026), eligibility rules, exact credit calculations, claiming steps, and practical examples. Whether you run a small business, mid-sized company, or large organization, this credit can offset 12.5% to 25% of qualifying paid-leave wages.

Download the official IRS Publication 5327 PDF here: https://www.irs.gov/pub/irs-pdf/p5327.pdf (1-page overview, Rev. 11-2018).

What Is IRS Publication 5327?

Publication 5327 (November 2018) is the IRS’s original one-page fact sheet announcing the new tax credit created by the 2017 tax reform. It briefly covers:

  • The credit’s purpose (encouraging employers to provide paid family and medical leave).
  • Basic eligibility (written policy required).
  • Credit range (12.5%–25% of qualifying wages).
  • Availability for wages paid in tax years beginning after December 31, 2017, and before January 1, 2020 (later extended).

While Pub 5327 itself is short and introductory, the credit has evolved significantly. Current details come from IRS FAQs on Section 45S, Form 8994 instructions (Rev. December 2024), and related guidance.

Key update (as of February 2026): Per IRS guidance, the credit applies to wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. Recent legislation (One Big Beautiful Bill Act of 2025) may affect permanence; IRS pages note that full updates are forthcoming. Employers should monitor IRS.gov for 2026+ confirmations. Form instructions already reference compensation limits through 2026, suggesting continued relevance.

Who Qualifies for the Section 45S Tax Credit?

Eligible Employers

Any employer (including those not covered by the Family and Medical Leave Act) that maintains a qualifying written policy providing paid family and medical leave.

Qualifying Employees

  • Employed by the employer for 1 year or more (reasonable method allowed, e.g., 12 months total service per FMLA regs).
  • Available to all qualifying employees (no exclusions by classification, e.g., union vs. non-union).
  • Part-time employees: Leave and credit prorated (e.g., half for someone working 20 hours vs. 40).

Important: The policy must cover every qualifying employee without improper exclusions.

Written Policy Requirements (The #1 Key to Claiming the Credit)

Your policy (in employee handbook, standalone document, or multiple docs) must:

  1. Provide at least 2 weeks of paid family and medical leave per year to full-time qualifying employees (prorated for part-time).
  2. Pay at least 50% of the employee’s normal wages during that leave.
  3. Be in place before the leave is taken (later of adoption or effective date).
  4. Include non-interference language if you have any employees not covered by FMLA Title I (standard sample language available in IRS Notice 2018-71).
  5. Make leave specifically designated for FMLA purposes only (not general vacation, personal, or sick leave).

State or local mandated/paid leave does NOT count toward your policy’s 50% or 2-week minimums. Your employer-paid portion must independently meet the thresholds.

Transition rule (first year only): For the initial tax year beginning after Dec. 31, 2017, employers could adopt the policy by Dec. 31, 2018, and apply it retroactively with compliance payments.

What Counts as Qualifying Family and Medical Leave?

Leave must be for one or more FMLA reasons (same definitions as FMLA regulations):

  • Birth/adoption/foster care of a child and caring for the child.
  • Caring for spouse, child, or parent with a serious health condition.
  • Employee’s own serious health condition preventing job performance.
  • Qualifying military exigency (spouse/child/parent on covered active duty).
  • Caring for a covered service member (spouse/child/parent/next of kin) with serious injury/illness.

Exclusions:

  • General vacation, personal, or non-FMLA sick leave.
  • Any portion paid by state/local government or required by state/local law.
  • Leave taken to care for non-qualifying relatives (e.g., grandparents, even if policy allows it).

Short-term disability (STD) benefits can qualify if the policy designates them for FMLA purposes and meets other rules.

Maximum per employee per tax year: 12 weeks of wages for credit purposes.

How to Calculate the Credit (12.5%–25%)?

The credit = Applicable Percentage × Qualifying Wages Paid (up to 12 weeks per employee).

Applicable Percentage:

  • Starts at 12.5% if your policy pays exactly 50% of normal wages.
  • Increases by 0.25 percentage points for each percentage point above 50%.
  • Maximum 25% (reached at 100% pay or higher).

Example 1 (Basic):

  • Policy: 4 weeks at 75% pay.
  • Employee normal weekly pay: $1,000.
  • Leave wages paid: 4 × $750 = $3,000.
  • Rate exceeds 50% by 25 points → 12.5% + (25 × 0.25%) = 18.75%.
  • Credit: 18.75% × $3,000 = $562.50.

Example 2 (Higher-tier employees):

  • Same policy but 100% pay for 10+ years service.
  • 10-year employee takes 4 weeks at $1,000/week = $4,000.
  • Exceeds 50% by 50 points → 25%.
  • Credit: 25% × $4,000 = $1,000.

Additional limit: Credit cannot exceed what the employee would have earned for actual hours worked during the leave period (normal hourly rate × hours of leave).

Wages = FUTA wages (section 3306(b)), without the $7,000 cap, but excluding amounts used for any other general business credit.

How to Claim the Credit on Your Tax Return?

  1. Complete Form 8994, Employer Credit for Paid Family and Medical Leave (January 2021 revision still in use for 2020+ years).
  2. Partnerships and S corporations file Form 8994 and pass through the credit.
  3. All other taxpayers report the credit directly on Form 3800, General Business Credit, Part III, line 4j.
  4. The credit is part of the general business credit and subject to limitations.

You can claim or elect NOT to claim the credit on an original or amended return within 3 years of the due date.

Wage deduction reduction: Reduce your wage expense deduction by the credit amount claimed.

Recordkeeping and Compliance Tips

  • Maintain the written policy document(s).
  • Documentation of leave taken, wages paid, and that it was for qualifying FMLA purposes.
  • Track qualifying employee status and compensation limits annually.
  • Third-party payers (PEOs, insurers) can pay the wages, but only the eligible employer claims the credit.

Aggregation: Controlled groups and common-control businesses are treated as a single employer for most purposes.

Why This Credit Matters in 2026 and Beyond?

Offering paid family and medical leave helps with recruitment, retention, diversity, and employee wellness—while delivering a direct dollar-for-dollar tax credit. With compensation limits rising each year and clear IRS examples, compliance is straightforward for most employers.

Pro tip: Even if your state has its own paid-leave program, you can still claim the federal credit for the portion you pay above the state requirement (as long as your policy independently meets the 50% and 2-week rules).

Official IRS Resources (Always Check for Updates)

Disclaimer: This article summarizes official IRS sources for informational purposes only. Tax rules are complex and subject to change. Consult a qualified tax professional or refer directly to IRS.gov for your specific situation. IRS guidance on potential permanence under 2025 legislation is pending full updates.

By implementing a compliant paid family and medical leave policy, employers can leverage the credit outlined in IRS Publication 5327 to support their workforce and lower taxable income. Start reviewing your current leave policies today to maximize this valuable benefit for tax years through at least 2025 (and potentially beyond).

Last updated based on IRS materials as of February 2026. Always verify the latest forms and FAQs on IRS.gov.