The 2017 Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, included a new tax credit for employers who offer paid family and medical leave. As more clarification and guidance continues to emerge on this new provision, the Internal Revenue Service (IRS) posted Frequently Asked Questions on April 9, 2018. Up until then, employers had many unanswered questions and were uncertain on how to proceed if they wished to take advantage of the credit.
This tax credit is available for all wages paid between January 1, 2018, to December 31, 2019. From now until then, employers who currently offer paid family and medical leave can take advantage of this credit, as long as all the stipulations are followed. For employers on the fence of offering such benefits, this could become a deciding factor in their employee benefits offerings.
Details on Claiming the Tax Credit
Section 13403 of the bill states that a general business credit may be claimed by employers equal to 12.5% of wages paid to qualifying employees during a paid family and medical leave, if their rate of payment during the paid leave was at least 50% of the wages normally paid to the employee. The credit increases by .25 percent points (not to exceed 25%) for each percentage point if the employee was paid more than 50% of their wages during the paid leave. The tax credit only applies for up to 12 weeks per employee per year.
There are other requirements which must be met before the tax credit can be claimed. Eligible employers must have a written paid leave policy granting full-time employees a minimum of two weeks of paid family or medical leave per year as well as an option for part-time employees to receive a prorated amount. These benefits must be offered to all employees who have been employed with the organization for at least a year. For the 2018 tax year, the credit can only be claimed on employees who did not earn $72,000 or more in 2017.
More Information on the Way
The IRS has acknowledged that more clarification is needed and will be answering questions such as:
- When the written policy must be in place
- How paid “family and medical leave” relates to an employer’s other paid leave
- How to determine whether an employee has been employed for “one year or more,”
- The impact of State and local leave requirements
- Whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.
The official IRS Tax Reform Tax Tip 2018-69 may also be referenced for additional information. PAYDAY will stay on top of this continuing topic as the IRS releases more information and guidance.