Changes to the Paid Family and Medical Leave (PFML) contribution rates were adopted this session with HB 2345. However, employers do not need to take action yet. The new rates will not take effect until January 2027, and the Employment Security Department (ESD) has stated they will release more information to employers on how to implement the new premium split later this year along with detailed calculations.

As a refresher, the state is implementing a new PFML premium rate split in response to IRS guidance released in 2025 that makes certain medical leave payments by the state subject to federal tax. According to ESD, the new premium contribution rate split will not change total contribution rates for employers or workers.

You can read more on the ESD website.

PFML contributions bill amended, passes the House

February 13, 2026

The Legislature is still working out the details on how to account for Paid Family and Medical Leave (PFML) contributions in light of the Internal Revenue Service’s 2025 guidance. The bill was amended in the House Appropriations Committee, taking away the originally proposed contribution rate split and replacing it with a calculation formula.

The bill states that employers can deduct up to 100% of the medical leave premium from employee wages. For family leave deductions, the formula gets complicated. The bill states that employers can deduct from employee wages “up to an amount equal to the difference between”:

• The full amount of the family leave premium plus 45% of the full medical leave premium; and
• The full amount of the medical leave premium.

Here is a hypothetical example:

The employee pays 100% of the medical leave premium amount of $20 monthly. The full amount of the family leave premium is $40. The employer calculates 45% of the full deduction for medical leave ($20), which equals $9, and then adds that $9 to the full premium amount of the family leave premium ($40) for a total of $49. The difference between the medical leave premium ($20) and the family leave premium calculated formula ($49) is $29. That $29 is the amount the employer can deduct from the employee’s wages for family leave.

Let’s break the example down in another format.

100% family leave premium + 45% medical leave premium = the amount to subtract from the full medical leave premium to determine the employee’s family leave deduction

Full amount of medical leave premium = $20 monthly

Full amount of family leave premium = $40 monthly

45% of the medical premium = $9

$9 + $40 = $49

$49 - $20 = $29 (the amount the employer can deduct from the employee’s wages for family leave)

Additionally, the House added language that once again allows the Employment Security Department Commissioner to determine percentage rates each year as outlined in current law.

The bill passed the House is now moving to the Senate.

Changes to PFML contributions proposed in response to IRS guidance

January 16, 2026

In response to guidance from the federal Internal Revenue Service (IRS) released in 2025, the Legislature is considering a bill to adjust employer contribution rates for family and medical leave.

The IRS guidance relates to the taxability of Paid Family and Medical Leave benefits and establishes that medical leave is considered a private insurance program and therefore treated as income. This delineation makes an employer’s medical leave contributions subject to federal income tax, with wages subject to employment taxes. However, family leave is not weighted the same, with employer contributions not subject to employment tax, though the full amount of family leave benefit is subject to income tax.

Therefore, HB 2345,sponsored by Rep. Suzanne Schmidt (R-Spokane Valley), removes the Employment Security Department’s (ESD’s) requirement to determine the premium rate split for family and medical leave and sets the new premium rates for employers with 50 or more employees.

The proposed contribution rates are as follows:

AWC does have some hesitation regarding the removal of the requirement for the ESD to determine the split between the family and medical shares within the total premium rate based on a percentage of paid claims. We are looking forward to learning more about the impact of that change as the bill receives further scrutiny.

Dates to remember

HB 2345 is scheduled for executive session in the House Labor & Workplace Committee on Friday, January 23, at 10:30 am.