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Get Credit Where Credit is Due - Tax Credit for Paid Family and Medical Leave

October 15, 2018
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Get Credit Where Credit is Due

New Employer Tax Credit for Paid Family and Medical Leave

Employers that provide paid family and medical leave to employees may qualify for a new credit for tax years 2018 and 2019. The tax credit was enacted as Section 45S and passed as part of the Tax Cuts and Jobs Act signed into law on December 22, 2017. Under section 45S, an employer may claim a general business credit for wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions.

The family and medical leave credit is available as a credit for eligible wages paid (excluding state/local paid or mandated paid family and medical leave) in tax years beginning in 2018 and 2019. To receive this credit, employers must have a written policy in place that meets specific requirements, including:

  1. Providing at least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part time), and
  2. Ensuring that paid leave is not less than 50% of the wages normally paid to the employee.

The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017 until December 31, 2019. The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. A qualifying employee is one who has been employed by the employer for at least a year and who is paid no more than 60% of the “highly compensated employee” dollar amount on an annual basis (i.e., $72,000 for 2017).

The tax credit starts at 12.5% for 50% wage replacement, increasing in increments of 0.25% for each 1% increase in wage replacement up to a maximum of 25% for 100% wage replacement. In certain cases, an additional limit may apply.

To see there is an opportunity for you to qualify for this tax credit, please speak with your tax professional.