ESPN's Adam Schefter reported the news.
Milano, whom the Bills selected in the fifth round of the 2017 NFL draft, has been one of their most valuable defenders when healthy over the past four years.
The versatile playmaker's best statistical season came in 2019 when he recorded 101 total tackles, nine passes defended, 1.5 sacks and a forced fumble across 15 appearances. He's isn't a traditional edge-rusher, but he did post a career-best 3.5 sacks in 2020.
The 26-year-old Boston College product is a major asset in coverage against running backs and tight ends because of his athleticism and small-area quickness.
Bills general manager Brandon Beane called Milano a "very good player" but admitted the team's salary-cap situation made it unclear whether it could afford to keep him.
"I wouldn't want to be anywhere else," Milano said.
The biggest question about him isn't his talent; it's his ability to stay healthy. He's missed 10 games over the past three seasons because of injuries, including time on injured reserve in 2020 with a pectoral injury. Beyond that, he has often played throughout ailments that limited his effectiveness.
If fully healthy for 16 games, Milano has legitimate Pro Bowl potential and could provide some of the best bang for the buck among contracts signed during this offseason.
The Bills' ability to make some financial maneuvers to re-sign their starting weak-side linebacker eliminates a major void they would have needed to fill. He'll remain a key piece of the defense, which must perform better in 2021 to overtake the Kansas City Chiefs in the AFC.
Milano will form one of the league's most high-upside tandems alongside Tremaine Edmunds in Buffalo.