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Focus on Taxation: Employers May Qualify for Tax Credits for Paid Family and Medical Leave

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The 2017 Tax Cuts & Jobs Act grants employers who voluntarily offer qualifying employees up to 12 weeks of paid family and medical leave annually, a tax credit for a portion of wages paid in 2018 and 2019. In order to be eligible for the credit, the employer’s written policy containing specific language must be in place before the leave is taken.
December 18, 2018

The 2017 Tax Cuts & Jobs Act grants employers who voluntarily offer qualifying employees up to 12 weeks of paid family and medical leave annually, a tax credit for a portion of wages paid in 2018 and 2019.

In order to be eligible for the credit, the employer’s written policy containing specific language must be in place before the leave is taken.

Other requirements include:

  • Generally for 2018, a qualifying employee is one who has been employed by the employer for at least one year and was paid no more than $72,000 in 2017.
  • The same types of leave that qualify under the Family and Medical Leave Act (FMLA) will qualify for the credit. Some examples are leave provided for the following:
    • Birth and care of a baby
    • Adoption of a child
    • Care of a spouse, child or parent with a serious health condition
    • Employee with a serious health condition who is unable to perform his or her job
  • The policy will be considered to be in place on the later of the policy’s adoption date or the policy’s effective date.
  • At least two weeks of annual paid family and medical leave must be provided for each full-time qualifying employee and at least a proportionate amount of leave for each part-time employee.
  • The policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave.
  • The credit is 12.5% of wages paid for leave paid at 50% and up to 25% for leave paid at 100%.
  • Wages qualifying for the credit generally have the same meaning as wages subject to FUTA determined without regard to the $7,000 FUTA limitation. Generally overtime (other than regularly scheduled overtime) and discretionary bonuses are excluded from wages for the calculation of the credit.
  • An employer’s deduction for wages paid will be reduced by the amount of the credit.
  • The credit will be calculated on Form 8994.
  •  Some employers can claim the credit retroactively to the beginning of 2018 if they meet certain transition rules by December 31, 2018.

More information can be found on the IRS website in the New Employer Tax Credit for Paid Family and Medical Leave Available for 2018 and 2019 release.

Please contact one of RubinBrown’s tax professionals to review your policy and further discuss the opportunity to utilize this new tax credit.

 

Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 

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