Credit for Paid Family and Medical Leave
The Tax Cuts and Jobs Act added additional complexity to the tax code – many of these changes are still coming to light. One new credit that made it’s way into the final version of the new law is a general business credit, one that provides incentive for paid family and medical leave.
This credit, the paid family and medical leave credit, is available to eligible employers for wages paid to qualifying employees on family and medical leave. The credit is available as long as the amount paid to employees on leave is at least 50% of their normal wages and the leave payments are made in employer tax years beginning in 2018 and 2019. That is, under the Tax Cuts and Jobs Act, the new credit is temporary and won’t be available for employer tax years beginning in 2020 or later unless Congress extends it further.
For leave payments of 50% of normal wage payments, the credit amount is 12.5% of wages paid on leave. If the leave payment is more than 50% of normal wages, then the credit is raised by .25% for each 1% by which the rate is more than 50% of normal wages. So, if the leave payment rate is 100% of the normal rate, i.e. is equal to the normal rate, then the credit is raised to 25% of the on leave payment rate. For purposes of the credit, the maximum leave allowed for any employee for any tax year is 12 weeks.
Eligible employers are those with a written policy in place allowing
- Qualifying full-time employees at least two weeks of paid family and medical leave a year, and
- Less than full-time employees a pro-rated amount of leave.
Qualifying employees are those who
- Have been employed by the employer for one year or more, and
- In the preceding year, had compensation not above 60% of the compensation threshold for highly compensated employees under the qualified retirement plan rules.
Paid leave provided as vacation leave, personal leave, or other medical or sick leave is not considered family and medical leave.