A new provision of the Tax Cuts and Jobs Act (TCJA) creates a new tax credit for employers who pay wages for family and medical leave. The new credit, which takes effect in 2018, only lasts through 2019. However, there is a chance it could be extended by future legislation. Eligible employers can claim a credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).

The IRS has not yet fully described some of the provisions, but here are the highlights:

• To qualify for the credit, the employer must provide at least two weeks leave at a rate of at least 50 percent of regular earnings.
• The credit is equal to 12.5 percent of the wages if the employer pays the minimum 50 percent of the regular pay rate, and it gradually increases to a maximum of 25 percent if the employer pays the normal wages.
• The credit is available only for wages paid to workers employed at the company for at least a year who are paid no more than $72,000 annually in 2017, adjusted for inflation in future years.
• Family and medical leave must be offered to both full-time and part-time employees.
• Employers must have a written policy that includes two weeks paid leave for family and medical leave at 50 percent or more of wages for full-time employees. And the amount must be prorated for part-time employees.
• Leave that is paid for or required under state and local law shouldn't be considered when determining the amount of paid family and medical leave provided by the employer, so no double dipping.
• If the employer claims the credit, they can't also deduct the wages as regular business expenses. Usually, the credit will be more valuable to employers than the deduction.

The IRS will be providing additional information that will address, for example, 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, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

Contact us if you have questions about how this credit may affect your business.  

For more information, follow this link to the IRS FAQ page on the subject: Section 45S Employer Credit for Paid Family and Medical Leave FAQs