Finance News & Insights

Thinking of using IRS’s new paid leave tax credit? What you need to know

The new paid family and medical leave business credit may be a huge opportunity for your firm, but there’s some key info you need to know before you jump in.

IRS just issued a FAQ spelling out the requirements for employers.

And you won’t want to let any grass grow under your feet on this one – the credit is only available for this year and next.

Here are the specifics so you can take advantage of maximum savings.

Who qualifies and how

First and foremost, your company must have a written paid leave plan that provides:

  • at least two weeks of paid family and medical leave a year to all qualifying employees who work full time (Note: you can prorate for part-timers), and
  • paid leave is not less than 50% of what the employee usually makes.

And not everyone on your payroll will nab you the credit. Qualifying employees must have worked for your company for a year or more and can’t make more than a certain threshold in the previous year.

So to claim the credit for 2018, for example, an employee can’t have made $72,000 in 2017 to be considered “qualified.”

As for how much you get, the minimum percentage is 12.5% and goes up by 0.25% for each percentage point that you pay employees over 50% of that person’s wages.

Of course there are limits – your credit maxes out at 25%.

What qualifies as leave?

But those aren’t the only requirements you have to work within to take advantage. IRS outlines specific scenarios when you can offer paid leave that will count as “family and medical leave” for the purposes of this
new tax credit.

These are all the circumstances under which you can foot the bill for leave:

  • the birth of an employee’s child and to care for that child
  • the placement of a child with the employee for adoption or foster care
  • the care of the employee’s spouse, child or parent who has a serious health condition
  • a serious health condition that makes the employee unable to perform the functions of his or her position
  • any qualifying absence due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces, and
  • the care of a service member who is the employee’s spouse, child, parent, or next of kin.

More guidance coming your way

You have no time to lose – this paid leave tax credit is a temporary offering. It’s available for wages paid in your taxable years after Dec. 31, 2017, until Dec. 31, 2019.

This won’t be the last you hear on the subject on the compliance front.

IRS says it’ll issue additional guidance to offer you more direction on, among other things:

  • when you must have a written plan in place
  • how paid “family and medical leave” relates to any other paid leave you offer
  • how you can determine whether an employee has been employed for “one year or more,” and
  • the impact of existing state and local leave requirements.

We’ll update you as soon as IRS comes out with anything further.

 

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