Employers that offer family and medical leave programs that meet certain criteria could qualify for tax credits under the Tax Cuts and Jobs Act (TCJA). Here are the rules.
For wages paid in 2018 and 2019, you may be able to claim a business tax credit for amounts paid to “qualifying employees” who take family and medical leave. The credit expires after December 31, 2019.
The following requirements must be met:
- You must have a written policy in place that provides at least two weeks of paid family and medical leave annually.
- Paid leave must be offered to all qualifying full-time employees. It may be prorated for part-time employees.
- Paid leave can’t be less than 50% of the wages normally paid to the employee.
If the leave was required by state or local law or was paid by a state or local government, it doesn’t qualify for this credit.
The credit is based on a percentage of wages paid to a qualifying employee while he or she is on leave for up to 12 weeks per tax year. The minimum percentage is 12.5%. It increases by 0.25% for each percentage point by which the amount paid to an employee exceeds 50% of his or her wages. The maximum credit is 25% of wages paid to an employee on leave. An additional limit may apply in certain cases.
It’s important to note that your deduction for wages must be reduced by the amount of the credit. Also, any wages used to determine other business tax credits can’t be used to determine the family and medical leave credit.
A qualifying employee is someone your company has employed for at least a year and whose compensation for the preceding year didn’t exceed a certain amount. For the employer to claim a credit for 2018, the employee can’t have earned more than $72,000 in 2017.
For the purposes of the credit, family and medical leave includes leave taken 1) for the birth of a child and to care for the child, 2) to care for a child placed with the employee for adoption or foster care, 3) to care for a spouse, child or parent who has a serious health condition, or 4) due to a serious health condition that makes the employee unable to perform his or her job.
It also covers certain needs that arise due to an employee’s spouse, child or parent being on active military duty or the need to care for a family member who is a qualifying service member.
Taking the break
Weaver can help you determine whether your program qualifies for this credit and help quantify any tax savings for 2018 and 2019. Contact us soon to request a consultation, especially since the credit expires at the end of this year.
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