New Employer Credit for Paid Family & Medical Leave

The Tax Cuts and Jobs Act created a new tax credit for eligible employers that voluntarily provide up to 12 weeks of paid family and medical leave to qualifying employees. This new credit is available for tax years beginning January 1, 2018, through December 31, 2019, unless extended by Congress. The employer must have a written policy in place that provides at least two weeks of paid family and medical leave at a payment rate that is at least 50% of an employee’s normal pay rate.

How much is the credit?

The credit is based on a percentage of wages paid to qualifying employees on family and medical leave. The rate begins at 12.5%, increases by 0.25% for each percentage point the wages paid exceed 50% of the employee’s normal wages, and is capped at 25%.

Example:

ABC Inc. pays $15,000 to a qualifying employee for family and medical leave, which is 50% of the employee’s normal wage. ABC Inc. is eligible for $1,875 ($15,000 x 12.5%) of paid family and medical leave credit.

Who is an eligible employer?

The new law requires that employers have a written policy in place with the following requirements:

• Qualifying full-time employees must be provided at least two weeks of paid family and medical leave on annual basis. For qualifying part-time employees (working less than 30 hours per week), the minimum leave amount is prorated based on the hours expected to be worked compared to the hours of full-time employees.
• Payment for paid family and medical leave cannot be lower than 50% of the employee’s normal wages.
• If the employer is not covered by the Family and Medical Leave Act of 1993 (FMLA), the policy must include a non-retaliation statement.

Who is a qualifying employee?

Qualifying employees must be employed for at least one year and, in the preceding year, paid no more than 60% of the highly-compensated employee threshold. (For example, a qualifying employee in 2018 could not be paid more than $72,000 ($120,000 x 60%) in 2017.)

How is “family and medical leave” defined?

• Birth, adoption, or fostering of a child and to care for that child
• Care for the employee’s spouse, child, or parent who has a serious health condition
• Serious health condition that makes the employee unable to perform the functions of his or her position
• Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces
• Care for a covered veteran or member of the Armed Forces who is the employee’s spouse, child, parent, or next of kin
• Paid time off that is considered vacation leave, personal leave, or sick leave is not permitted

If you have any questions, please contact a member of your Porte Brown advisory team at 847-956-1040.