INSIGHT

How HR leaders can cut family care costs while boosting employee retention  

Jill Pappenheimer, Stacy Litteral • September 26, 2025

Services: HR Consulting, Human Resources

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The One Big Beautiful Bill Act has introduced game-changing enhancements to family-focused benefits that create openings for HR leaders to strengthen their value proposition. Two provisions in particular—the permanent establishment of the Family and Medical Leave Credit and significant improvements to the Adoption Tax Credit—represent powerful tools for organizations committed to supporting working families through life’s most important moments. 

These changes go beyond simple tax adjustments. They create strategic opportunities for employers to differentiate themselves in competitive talent markets while demonstrating genuine commitment to work-life balance and family support.  

For HR professionals and benefits administrators, understanding and leveraging these enhancements can transform your organization’s approach to family benefits and employee retention. 

Family and Medical Leave Credit: A permanent competitive advantage 

The OBBBA permanently establishes the employer credit under Code section 45A for wages paid to qualifying employees on family and medical leave, beginning in 2026. To receive this credit, employers must either directly pay employees during leave periods or maintain private insurance policies (such as short-term disability plans) that provide these leave payments.  

This represents a fundamental shift from temporary policy to permanent strategic tool, allowing organizations to plan long-term family leave strategies with confidence while choosing the payment method that best fits their current benefits structure. 

Understanding the permanent credit structure 

Beginning in 2026, eligible employers may claim a tax credit as part of the general business tax credit for up to 25% of either wages paid to qualifying employees during family and medical leave periods or the total amount of premiums paid for insurance policies that provide paid family and medical leave. 

This dual-option structure provides unprecedented flexibility in benefit design. Organizations can choose the approach that best aligns with their current benefits architecture while maximizing tax advantages. 

Key credit features include: 

• Credit rate: Up to 25% of qualifying wages or insurance premiums 
• Employee eligibility: Full or part-time employees (at least 20 hours per week) who have worked for at least six months 
• Income limitations: Credit applies to employees earning under specific thresholds ($96,000 for 2026) 
• Leave duration: Minimum two weeks of paid leave annually (adjusted for part-time workers) 
• Wage replacement: At least 50% of regular wages during leave periods 

Strategic implications for HR leaders 

The permanent nature of this credit transforms family leave from a cost center into a strategic investment with measurable tax benefits. This provision offers meaningful support for working family caregivers and helps create workplace policies that recognize the growing need to balance work and family obligations. 

Consider the broader context: Seventy percent of working-age caregivers are navigating the dual responsibilities of paid employment and caregiving, according to a joint report by AARP and the National Alliance for Caregiving. This creates enormous opportunity for organizations that can provide comprehensive family leave support. 

Implementation strategies for family leave programs 

The permanent nature of the Family and Medical Leave Credit creates opportunity for comprehensive program development that organizations can build and refine over time. 

Program design considerations 

Effective family leave programs require careful design to maximize both employee value and tax credit benefits: 

Eligibility requirements: 

• Determine optimal employment period (6-12 months) based on organizational needs 
• Establish clear documentation requirements for qualifying leave 
• Create processes for coordinating with existing FMLA obligations 

Benefit structure: 

• Decide between wage-based or insurance-premium-based credit election 
• Establish wage replacement percentages (minimum 50% required for credit)
• Design leave duration policies that meet credit requirements while supporting employee needs 

Administrative systems: 

• Implement tracking systems for credit-eligible wages and leave periods 
• Establish coordination procedures with payroll and benefits administration
• Create documentation processes for credit substantiation 

Coordination with existing benefits 

The Family and Medical Leave Credit works alongside existing benefits rather than replacing them: 

• FMLA coordination: Credit-eligible leave can run concurrently with FMLA leave 
• State law compliance: Programs must meet or exceed state-mandated requirements while claiming credit for voluntary enhancements 
• Disability integration: Coordinate with short-term disability benefits to avoid gaps or overlaps 
• PTO policies: Consider how paid family leave interacts with existing paid time off programs 

Enhanced flexibility provisions 

The permanent credit includes several enhancements that make it more accessible and valuable than previous iterations: 

• State law coordination: Employers can receive the credit for leave provided in states that don’t mandate paid leave, and receive credit for any paid leave provided in excess of that mandated by state or local law 
• Insurance premium option: Organizations can elect to claim credit for insurance premiums rather than direct wage payments, providing greater flexibility in benefit delivery 

• Reduced qualification period: Employers can choose to shorten employee qualification for paid family and medical leave to 6 months of employment instead of requiring a full 12 months 

Adoption credit improvement: Supporting growing families 

The tax credit for adoption expenses was modified to make $5,000 of the maximum credit refundable, with inflation adjustments beginning in 2025. This enhancement transforms the adoption credit from a liability-reduction tool into a meaningful financial support mechanism for families regardless of their tax situation. 

Understanding the refundable enhancement 

Up to $5,000 of the adoption credit becomes refundable, meaning dollars could be returned as a refund even if families have limited tax liability. This amount will be adjusted for inflation annually, with the total credit remaining up to $17,280 in 2025. 

The refundable nature addresses a critical gap in previous adoption support. Many families pursuing adoption—particularly younger families or those with modest incomes—previously couldn’t fully utilize the credit due to insufficient tax liability. The refundable portion eliminates this barrier. 

Expanded accessibility for working families 

As a partially refundable tax break, families may receive part of the credit as a tax refund, even if their tax liability is zero. This creates meaningful financial support during the adoption process, when families often face significant upfront expenses. 

The credit structure for 2025 includes: 

• Maximum credit: $17,280 per adoption 
• Refundable portion: Up to $5,000 (inflation-adjusted) 
• Income phase-out: Begins at $259,190 MAGI, completely phases out at $299,190 MAGI 
• Effective date: Enhancements apply to taxable years beginning after December 31, 2024 

Strategic considerations for employers 

While the adoption credit is an individual tax benefit rather than an employer-provided program, savvy HR leaders can leverage this enhancement in several ways: 

• Employee education: Provide information about the enhanced credit as part of comprehensive financial wellness programs 
• Adoption assistance coordination: Align employer-provided adoption assistance with the enhanced tax credit for maximum family benefit 
• Communication strategy: Highlight awareness of family-building support as part of broader work-life balance messaging 
• Benefits integration: Consider how adoption support fits within broader family benefits strategies 

Transform your family benefits strategy with BPM 

The One Big Beautiful Bill Act’s family-focused enhancements represent a generational opportunity to strengthen your organization’s support for working families while generating meaningful tax benefits. The permanent establishment of the Family and Medical Leave Credit and the enhanced Adoption Tax Credit create powerful tools for differentiation in competitive talent markets. 

At BPM, our HR advisory and tax specialists understand how to integrate these enhancements into comprehensive family benefits strategies that maximize both employee value and organizational return on investment. Whether you’re designing new family leave programs, optimizing existing benefits for tax credit eligibility, or developing comprehensive family support initiatives, we can help you navigate the complexities while capturing every available opportunity. 

From program design and compliance documentation to system integration and ongoing optimization, our team provides the strategic guidance and technical support necessary to transform these legislative changes into competitive advantages for your organization. 

Ready to build a family benefits strategy that works for everyone? Contact BPM today to schedule a consultation with our Benefit Consulting Team. Together, we can develop comprehensive programs that support your employees through life’s most important moments while generating meaningful tax benefits for your organization.