The IRS has announced that for tax years 2018 and 2019, employers that provide paid family and medical leave may qualify for a new business credit. In addition, eligible employers who set up qualifying paid family leave programs or amend existing programs by December 31, 2018, can claim the credit for paid family and medical leave, retroactive to the beginning of the employer’s 2018 tax year, for qualifying leave already provided. This is all part of the Tax Cuts and Jobs Act.
Treasury’s notice clarifies how to calculate the credit, and details special rules and limitations. To claim the credit, an employer must have a written leave policy that satisfies the following requirements:
- The policy must cover all qualifying employees -- all employees who have been employed for a year or more and were paid not more than a specified amount during the preceding year, generally not more than $72,000 in 2017.
- The policy must provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee.
- The policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave.
- If an employer employs qualifying employees who are not covered by Title I of the FMLA, the employer’s written policy must include language providing “non-interference” protections, as described in Section A of Notice 2018-71. Thus, the written policy must incorporate the substantive rules that must be met for an employer to be eligible for the credit.
Any leave paid by a state or local government or required by state or local law is not taken into account for any purpose in determining the amount of paid family and medical leave provided by the employer, meaning those amounts do not qualify for the credit.
The credit equals a percentage of the wages an employer pays employees while they are on paid family or medical leave. The reasons an employee may take a family or medical leave are detailed under Title I of the Family and Medical Leave Act of 1993 (FMLA), P.L. 103-3.
If you paid family and medical leave as part of your benefits package, don’t miss out. Reach out to your BGW representative for help in getting started on documenting and claiming this business tax credit.