It is almost inevitable, every employer, at some point, will encounter an event requiring an employee’s leave of absence. Fortunately, under the tax cuts and jobs act, legislation enacted a tax credit for employers who provide paid family and medical leave to their employees.
The family and medical leave (FML) tax credits range from 12.5 percent to 25 percent of wages paid during an employee’s leave. Under Code Section 45S, the FML credit is available to eligible employers who provide paid leave (wages) to qualifying employees under the Family and Medical Leave Act (FMLA) during employer tax years starting 01/01/2018 and ending 12/31/2019.
Employer eligibility – an employer must have a written policy in place that includes:
- At least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for part-time employees), and
- The paid leave is not less than 50 percent of the wages normally paid to the employee.
For purposes of the FML credit, family and medical leave includes one or more of the following:
- Birth of an employee’s child and to care for the child.
- Placement of a child with the employee for adoption or foster care.
- Care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to do the functions of their position.
- Any qualifying need due to an employee’s spouse, child or parent being on covered active duty in the Armed Forces. This includes notification of an impending call or order to covered active duty.
- To care for a service member who is the employee’s spouse, child, parent, or next of kin.
If an employer provides paid vacation leave, personal leave, or medical or sick leave (other than leave specifically for one or more of the purposes stated above), that paid leave is not considered family and medical leave.
How is the FML credit calculated?
- The minimum percentage is 12.5 percent of the amount of wages paid to a qualifying employee while on family and medical leave, which can be up to 12 weeks.
- The minimum percentage is increased by 0.25 percent for each percentage point by which the amount paid to a qualifying employee exceeds 50 percent of the employee’s wages, for a maximum of 25%.
If you think the new Employer Credit for Paid Family and Medical Leave Credit might impact you and your business or require any other assistance with your tax planning and compliance needs, please contact Mark Levine (firstname.lastname@example.org) or Nathan Rizk (email@example.com) or call (972) 644-7112.