The new Employer Credit for Paid Family and Medical leave, Section 13403 was signed into law as part of the tax bill in December 2017. This provision created a two-year pilot program for employers that provide paid family and medical leave to their employees.
To take advantage of the tax credit, employers must ensure that the paid leave is addressed in a separate written policy. Most company’s current PTO policies will not qualify for the tax credit.
The IRS and the Treasury Department have yet to post official guidance regarding the credit, nor have they issued proposed or interim tax regulations. The lack of guidance leaves eligible employers relying on the tax bill’s language if they choose to move forward with the expectation of claiming the credit when paying business taxes for 2018.
At a minimum, the policy will need to provide at least two weeks of paid leave to all qualifying employees for family and medical leave at not less than 50 percent of wages for full-time, and a prorated amount for part-time, employees. The paid leave cannot be provided as vacation, personal, medical or sick leave. The tax credit ranges from 12.5 percent to 25 percent of the cost of each hour of paid leave taken, depending on how much of a worker’s regular earnings the benefit replaces. The credit covers 12.5 percent of the benefit’s costs if workers receive half of their regular earnings and up to 25 percent if workers receive their entire regular earnings. This credit can only be applied toward workers who earn below $72,000 per year.
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