Tax Services • Published 1/30/2018 Family and Medical Leave Tax Credit for Employers

Does your organization provide paid leave other than vacation or sick leave such as maternity or paternity leave to your employees?  Then you may be eligible for the Family and Medical Leave tax credit in tax years 2018 and 2019. In general, this tax credit is available to any size employer, not just those subject to the Family and Medical Leave Act (FMLA).

Since 1993, the FMLA has provided job protection for people that work for employers with 50 or more employees within a 75-mile radius when they take up to 12 weeks of unpaid leave to care for a family member, to care for a new child born or adopted, or their own serious health condition. This period is extended to 26 weeks when caring for a wounded service member or veteran. The new tax act provides a temporary credit to qualifying employers that provide paid family and medical leave to their employees. The tax credit is equal to a percentage of wages paid to eligible employees while on family and medical leave. The purpose of the tax credit is to close the gap in access to paid family and medical leave.

Qualifying Employer

The term “eligible employer” means any employer who has a written policy in place that meets the following requirements:

• The policy must provide not less than two weeks and not more than 12 weeks of annual paid family and medical leave for full-time employees. A full-time employee is one that works 30 hours or more per week. Part-time employees must receive a proportional benefit.
• The policy must provide that the rate of payment is not less than 50% of normal wages.
• The policy must provide that any non-FMLA covered employee will not be retaliated against or discriminated against for exercising any right under the policy.

Qualifying Employee

The term “qualifying employee” means any employee who has worked for the employer for one year or more and is not paid more than 60% (currently $72,000) of the amount of a highly compensated employee under a qualified plan.  Note: the employee does not have to meet a minimum hours requirement for this potential tax credit.

Excluded Payments

If the employer provides paid leave as vacation leave, personal leave, or medical or sick leave, other than for FMLA purposes, that paid leave will not be considered a part of paid family and medical leave for purposes of this provision.

Tax Credit Amount

The amount of the credit starts at 12.5% when the amount of wages is 50%. The credit is then increased .25% for each percentage rate by which the rate of payment exceeds 50%, with the credit not to exceed 25%.

Purpose of Leave

For purposes of the tax credit, family and medical leave means leave for one or more FMLA purposes. FMLA leave is available for the following:

• The caring of one’s spouse, child, or parent who has a serious health condition
• The birth, adoption, or foster care of a new child
• The employee’s own serious health condition
• The caring of a family member who is a service member or veteran and certain military deployments

Time Period

Currently, the tax credit is available for the tax years 2018 and 2019. This provision is to be revisited prior to its expiration to see if it should be extended to future years.

It remains to be seen whether this tax credit will entice employers to close the gap in providing employees access to paid family and medical leave. However, for those employers that do provide paid leave for one or more FMLA purposes, it may be worth analyzing whether that leave should be expanded to part-time employees.