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New Employer Tax Credit for Paid Family & Medical Leave

The Tax Cuts and Jobs Act signed into law in December of last year creates a new business tax credit for employers that provide paid family and medical leave to employees. Here’s what you need to know:

  • The tax credit is temporary and applies to tax years 2018 and 2019
  • The credit is equal to a percentage of wages paid to qualifying employees who are on family and medical leave
  • Employers of all sizes qualify, even if they are not required to offer leave under the federal FMLA

To qualify for the credit, employers must have a written policy in place providing at least two weeks of paid family and medical leave at a rate that is at least 50 percent of an employee’s normal pay rate.

The amount of the credit is based on a percentage of wages paid to qualifying employees for paid family and medical leave. That percentage begins at 12.5 percent and increases by .25 percent for each percentage point by which the payment rate for qualifying leave exceeds 50 percent of the employee’s normal wages.

So, for example, compensation for paid leave at 50 percent of an employee’s salary would result in a 12.5 percent tax credit; compensation for paid leave at 52 percent of normal pay would result in a 13 percent credit, and so on. The tax credit is capped at 25 percent.

For purposes of both the FMLA and the tax credit, a “qualifying employee” is one who has been employed by the employer for at least one year and whose compensation for the preceding year did not exceed $72,000.

While IRS guidance and regulation on this new issue is still pending, the best early action step for employers is to make sure a written policy is in place offering paid family and medical leave, and to review that policy for full compliance with FMLA regulations.

Question about the new tax credit or other employer issues? Contact Consolidated Insurance.