The new federal paid leave tax act created a credit for employers that provide paid family and medical leave to employees. This will be in effect at least until the end of 2019.
The IRS and Treasury Department have not yet issued official guidance regarding the credit.
Tax Credit Summary
Employer Credit for Paid Family and Medical Leave:
- Eligible employers can claim a general business credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).
- To receive the credit, employers must provide at least two weeks of leave and compensate workers at a minimum of 50 percent of their regular earnings.
- The credit will range from 12.5 percent to 25 percent of the cost of each hour of paid leave. This depends on how much of a worker’s regular earnings the benefit replaces. The government will cover 12.5 percent of the benefit’s costs if workers receive half of their everyday earnings. This increases incrementally to 25 percent if they accept their total regular payments.
- Employers can only apply the credit toward workers who have been employed at the organization for at least a year. Also, they must have been paid no more than $72,000 for 2017. This wage ceiling will be adjusted for inflation in the future.
- Both full-time and part-time workers must be offered paid leave, if employed for at least a year. This is if the employer wants to claim the tax credit.
- Employers must allow part-time employees to take a proportional amount of paid leave, determined on a prorated basis.
Employer Actions
With additional regulations forthcoming, employers will need a written policy. This must provide at least two weeks of paid leave for family and medical leave. However, at no less than 50 percent of wages for full-time. Additionally at a prorated amount for part-time employees.
To be considered for the tax credit, the paid family and medical leave must be a separate provision in the employer’s policies.
Employers should also review state and local leave legislation to ensure no conflicts with the leave-credit program. The credit does not apply concerning paid leave mandated under state or local law.
Employers that provide paid family and medical leave for employees who aren’t covered under the Family and Medical Leave Act also must include a nonretaliation provision in the policy.
We will update this post when more guidance is issued.
