A provision in the 2017 tax reform law offers an end-of-the-year gift to employers – as long as they act before Dec. 31.
It consists of a tax credit for qualifying types of paid leave provided to full- and part-time employees. It’s available to any employer, regardless of size, who provides at least two weeks of paid family and medical leave annually for employees who have been with the company for at least 12 months.
Paid leave must be at least 50% of the wages normally paid to the employee whose prior year compensation was at or below $72,000 for 2018.
The credit is equal to 12.5% of wages paid an employee for up to 12 weeks of leave in a tax year that is protected by the Family and Medical Leave Act and receiving 50% of normal wages, which are defined as not including overtime or bonuses.
The credit increases by 0.25% for each percentage point by which the rate of paid leave exceeds 50% of normal wages, up to a maximum credit of 25% where a qualifying employee receives 100% of his or her normal pay while on leave.
For example, a paid maternity or paternity leave policy that provides additional paid leave (which is over and above vacation, sick leave or other paid time off) is likely to qualify for the credit, according to attorneys Anne Batter and Sinead Kelly of the law firm of Baker McKenzie.
Employers who already provide FMLA paid leave must amend their written policies by Dec. 31, which will allow them to claim the credit for qualifying leave taken since Jan. 1, 2018 (as well as in 2019).
“Employers should familiarize themselves with this tax credit and analyze how the credit might impact their decision,” says attorney Arslan Sheikh of the law firm of Porter Wright Morris & Arthur.
“Because the tax credit is available only for wages paid in 2018 and 2019, employers should consult their attorneys and financial advisors to determine whether instituting a paid leave policy merely to claim this credit is worth the cost,” he says.