Among the many changes brought on by last year’s Tax Cuts and Jobs Act, one potentially beneficial update from the law is the new Employer Credit for Paid Family and Medical Leave. This completely new credit is currently available for the 2018 and 2019 tax years. Employers may be eligible for a credit ranging from 12.5% to 25% of wages paid to employees taking protected leave provided for in the Family and Medical Leave Act. Action must be taken prior to December 31, 2018 in order to take advantage of this credit.
Which Employees’ Wages Qualify?
In order for an employee’s wages to qualify in the calculation of the credit, the employee:
- Must have been employed at least one year with the company
- Must not receive compensation exceeding $72,000 in 2017
- May be a full-time or part-time employee
How is the Credit Calculated?
At a minimum, the paid leave wages must equal 50% of a qualifying employee’s regular wages to claim a 12.5% credit. The percentage of credit allowed to be claimed increases 0.25% for every 1% increase in paid leave wage, maxing out at 25% for 100% of wages paid.
If an employee on paid leave whose normal weekly wages are $1,000 is paid $500 per week, or 50% of their normal wages, the employer would determine the credit as $500 x 12.5% = $62.50 per week of leave. However, if the policy is to pay leave wages at 80% of normal wages, the credit will be calculated at 20% (equal to the base 12.5% credit + 30% over the base 50% x 0.25% credit increase allowed). Now the credit available to the employer will be $800 x 20% = $160.
The amount of wages included in the credit calculation may not exceed an employee’s normal wages, and only up to 12 weeks of paid leave wages per employee may be included.
What is the Employer Responsibility?
As the employer, you must have a written paid leave policy in place. The same paid leave must be available to all qualifying employees and at a minimum must cover 50% of wages for two weeks of leave.
As mentioned, action must be taken to be eligible for the credit in the 2018 filing season. You must have the written policy in place prior to December 31, 2018. If you believe this credit could benefit your business, your Bennett Thrasher tax advisor is available to discuss further details and can be contacted by calling 770.396.2200.