Tax Cuts and Jobs Act Creates Employer Credit for Paid Family and Medical Leave
Posted: February 21, 2018Summary
Certain employers that pay family and medical leave to their employees may be eligible to claim a Family and Medical Leave Credit equal to 12.5 percent (or more) of the amount of wages paid to those employees during any period in which such employees are on family and medical leave.
Details
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, creating an employer credit for paid family and medical leave (the Family and Medical Leave Credit). To be eligible for the credit, the employer must have in place a written policy that guarantees a certain minimum amount of paid family and medical leave to its employees. For a qualifying employee who is not a part-time employee, the policy must guarantee at least two weeks of annual paid family and medical leave. For a qualifying employee who is a part-time employee, the policy must guarantee an amount of annual paid family and medical leave that is not less than the amount guaranteed to a qualifying non-part-time employee, prorated based on the ratio of the expected work hours for the part-time employee relative to the expected work hours for a not part-time employee. In no case may the rate of payment under the program be less than 50 percent of the wages normally paid to such employee for services performed for the employer.
The Family and Medical Leave Credit is based on wages paid by an eligible employer to a qualifying employee. For this purpose, a “qualifying employee” is an employee who has been employed by the employer for one year or more; and, for the preceding year, had compensation equal to or less than 60 percent of the amount established under Internal Revenue Code § 414(q)(1)(B)(i), as adjusted periodically for inflation (60 percent of $120,000, or $72,000, for 2017). Wages include all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash, except as provided in Internal Revenue Code § 3306(b)(1)-(20), and except any amount(s) taken into account for purposes of determining any other credit.
The base credit amount is equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave. However, the applicable percentage is increased (but not above 25 percent) by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50 percent of the wages normally paid to such employee for services performed for the employer. The credit is limited to the amount that would be paid at the employee’s normal hour rate for the number of hours for which the employee takes family and medical leave, but may not exceed 12 weeks.
BDO Insights
- The Family and Medical Leave Credit applies to wages paid in taxable years beginning after December 31, 2017, leaving employers time to develop their policies and compensation structures to maximize their Family and Medical Leave Credit benefit.
- An eligible employer’s policy regarding amounts paid to be during family and medical leave must be separate from the employer’s policy regarding other types of paid time off (e.g., paid leave as vacation leave, personal leave, or certain medical or sick leave).
- An eligible employer that provides paid family and medical leave to qualifying employees who are not covered under the Family and Medical Leave Act (FMLA) may take the credit as long as the employer’s policy ensures that the employer will not interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy; and will not discharge or in any other manner discriminate against any individual for opposing any practice prohibited by the policy.
For more information, please contact one of the following practice leaders:
| Tim Schram Tax Managing Director |
Taryn Goldstein Tax Managing Director |
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| Tanya Erbe Tax Managing Director |
Janet Bernier Tax Principal |