top of page

What you need to know about the new paid family and medical leave tax credit

Barbara Dreves

Updated: Jan 11, 2019

On September 24, 2018, the IRS published guidance on the employer credit for paid family and medical leave in Notice 2018-71. The notice provides some much needed clarification.


Credit overview

Generally, the paid family and medical leave tax credit provides employers a tax credit who voluntarily pay qualifying employees on FMLA (Family and Medical Leave Act of 1993) leave.


Who qualifies

A qualifying employee must have been employed at least one year and paid less than a certain amount. The employer must have a written policy that provides at least 50% of normal wages during at minimum a two week period of paid leave to all qualifying employees and prorated leave for all qualifying part-time employees. The employee cannot be paid more than $72,000 for the preceding year. The written policy need not be in a single document coving all of the aspects of the policy and benefits.


In a tax year, the employer is limited to 12 weeks per employee. The employer cannot take into account non-FMLA leave such as vacation, PTO, medical/sick leave.


How to calculate

50% of Normal Wages - Employers can claim a credit equal to 12.5% of the wages paid for during leave.


Over 50% of Normal Wages - The credit increases .25% for every 1% over 50% of normal wages paid. For example: If an employer pays 75% of normal wages the credit would be 18.75%. Calculated as 75%-50% = 25% x .25 = 6.25% +12.5% = 18.75%.


How to File for the Credit

Use Form 8994 is used to claim the credit.


Guidance Summary

There are pros and cons for those who want to take the credit. For the pros, the guidance allows for a transition period to allow employers to make retroactive changes to existing paid leave programs. It also allows taxpayers of a control group to opt out if a legal entity does not qualify. Short-term disability paid pursuant to an insurance policy may qualify for FLMA. For the cons, there isn't a carve out for union employees or governmentally required leave policies.


By Barbara Dreves, CPA

If you have any questions or want to learn more, email barb@calc-you-later.com

11 views0 comments

Recent Posts

See All

Comments


bottom of page