A new federal tax credit is available for employers that provide paid family and medical leave to their employees thanks to the 2017 Tax Cuts and Jobs Act. The credit is available beginning this year, 2018, and is effective until the end of 2019, although many are hopeful that future legislation will make the program permanent.
The IRS posted a set of frequently asked questions (FAQs) and answers regarding the new employer credit for paid family and medical leave. The FAQs clarify some of the provisions in the tax act’s Section 13403, Employer Credit for Paid Family Medical Leave, including the following:
- The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%. In certain cases, an additional limit may apply.
- An employer must reduce its deduction for wages paid by the amount of any tax credit for paid FMLA leave.
- Any wages taken into account in determining any other general business credit may not be used in determining the paid-leave credit.
Now is the time for employers to take action to get the logistics in place to take advantage of this credit. Some things that employers can do now include:
- Looking over their paid time-off and leave policies to see if any changes need to be made to meet the guidelines of the tax credit. For example, the two weeks of paid leave cannot be provided as vacation, personal, medical or sick leave. The FMLA leave must be a separate policy.
- Reviewing state and local leave laws to check that there are no conflicts with the federal program.
- Ensuring they have proper ways to track which employees qualify for the credit.
The IRS expects to release additional information about the credit that will address other provisions of the law, including when the written policy must be in place, how to determine whether an employee has been employed the time needed to qualify, and the impact of state and local leave requirements.
Have questions about how to make sure your organization is on point to take advantage of this tax credit? Start here.