The new federal tax law creates a temporary business tax credit for eligible employers who provide paid family and medical leave to their employees. This credit applies to tax years 2018 and 2019, and is calculated based on a percentage of the amount paid to the employees, ranging from 12.5% up to 25%. Even if an employer has fewer than 50 employees and is not required to offer leave under FMLA, the new law allows those smaller employers to qualify for the credit.
Several requirements and restrictions apply. Among them are the following:
- The employer must have a written policy that provides at least 2 weeks of paid family and medical leave.
- The payment rate must be at least 50% of an employee’s normal pay rate.
- Part-time employees must be paid on a proportional basis.
- The amount of paid leave is capped at 12 weeks.
- The paid leave must be in addition to any paid vacation or sick leave which is already being provided to employees.
The IRS will likely be issuing regulations specifying the details of the credit’s requirements. In the meantime, employers who want to take advantage of the credit should review their leave policies and determine if they should be revised to satisfy the requirements of the new law.