Recent Internal Revenue Service (“IRS”) tax reform established a new credit for small, private employers who offer paid family and medical leave policies that meet certain requirements. The credit, created by the 2017 Tax Cuts and Jobs Act, is in effect for tax years 2018 and 2019, although Congress could extend it. Interested businesses should meet with their legal or tax counsel to see if they qualify for this credit.

Here are some key considerations regarding the new credits:

  • To qualify, an employer must have a written policy that meets several requirements set out by the official IRS Notice. These requirements include at least two weeks of paid family and medical leave to full-time employees, prorated paid leave for part-time employees, and provide leave pay that is at least 50% of the wages normally paid to the employee.
    • Further, the policy must include appropriate “non-interference language” if the employer is not subject to Title 1 of the Family Medical Leave Act (“FMLA”) or employs at least one qualifying employee who is not covered under Title 1 of the FMLA.
  • The leave offered to employees can be for any or all of the reasons specified in the Family Medical Leave Act. However, any leave paid by a state or local government or that is required to be provided by state or local governments does not count towards the 50% of wages normally paid to an employee.
  • The credit is generally equal to 12.5-25% of paid family and medical leave for qualifying employees, for up to 12 weeks per year.
  • The credit is available for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020.
  • Though employers can normally only claim the credit based on eligible leave taken after the effective date of their new or amended leave policy, there are two situations in which retroactive credit can be claimed.
    • First, if a written leave policy or amendment to a policy will be considered to be in place as of the effective date, rather than a later adoption date if it is adopted on or before December 31, 2018.
    • Second, the policy will be in place as of the effective date if the employer brings its leave practices in compliance with the terms of the retroactive policy or amendment, including making any retroactive leave payments, no later than the last day of the taxable year.
  • Salary thresholds apply and employees must have been employed for one year or more.
  • To claim the credit, employers must attach a newly drafted IRS form to their tax return.

Though this new tax credit is a great option for many businesses, care must be taken to ensure that the narrow requirements set by the IRS are met. The experienced employment attorneys at Ferguson Braswell Fraser Kubasta PC can help you determine if you meet the qualifications and carefully craft your family and medical leave policies help you take advantage of this tax credit.

This article is legal information and should not be seen as legal advice. You should consult with an attorney before you rely on this information.

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Traci Clements
Traci focuses on general employment law matters as well as ERISA and employee benefits, including executive compensation. She has both worked in Human Resources, and served as in-house counsel - including a position as General Counsel to a small capital publicly traded company.
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