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New tax credit benefits for employers supplying family and medical leave

Posted on November 8, 2018

Eligible employers who provide paid family and medical leave to their employees during tax years 2018 and 2019 may qualify for a new business tax credit, according to the CPA team at Teipen Selanders Poynter & Ayres.

This is good news for employers who provide paid family and medical leave for their employees.

A part of the Tax Reform legislation passed late last year, the employer credit for family and medical leave states that to be eligible, an employer must have a written policy that meets the following requirements:

  • At least two weeks of paid family and medical leave to full-time employees
  • Provides prorated paid leave for part-time employees
  • Pays for leave that is at least 50 percent of the wages normally paid to that employee.

Amount of the tax credit: The credit is generally equal to 12.5 to 25 percent of paid family and medical leave for qualifying employees.

Timeframe for tax credit: It is available for wages paid in taxable years beginning after Dec. 31, 2017 and before Jan. 1, 2020.

The leave can be for any or all of the reasons specified in the Family and Medical Leave Act, including:

  • Birth of an employee’s child
  • Care for the child
  • Placement of a child with the employee for adoption or foster care
  • Care for an employee’s spouse, child or parent who has a serious health condition
  • Leave for a serious health condition that renders an employee unable to perform the functions of his/her position
  • Any qualifying emergency due to an employee’s spouse, child, or parent being on covered active duty in the Armed Forces
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin.

*TSPA wants you to note an important caveat:

Leave paid by a state or local government, or that is required to be provided by state or local law, will not count toward the 50 percent.

How can companies claim this credit retroactively?

The business savvy CPAs at Teipen Selanders Poynter & Ayres can help employers claim the credit based on eligible leave taken after their new or amended policy goes into effect. To claim the credit, employers must attach new IRS Form 8994 to their return, available from the IRS before the close of 2018.