The new Tax Cuts and Jobs Act (TCJA) includes significant changes for individuals and businesses alike, enhancing some tax breaks and eliminating or reducing others. One new provision creates a new tax credit for employers who pay wages for family and medical leaves.
Currently, the new credit has a short shelf life, taking effect in 2018 and only lasting through 2019. However, there's a chance it will 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).
Here's how it works
The IRS has yet to issue official guidance, but here are some of the basics:
- 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 percentage ranges from 12.5 percent to 25 percent of the paid leave based on the amount of wages. For instance, the credit is equal to only 12.5 percent of the wages if the employer pays the minimum 50 percent of the regular pay rate, but 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- and part-time workers.
- Employers need to 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.
No double dipping
Finally, 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.
If you have questions about how this credit affects your situation, give us a call.