I am thrilled to be a guest blogger for our esteemed Employee Benefits group! As a Labor and Employment attorney, I work with our Benefits team on a variety of issues, including leave of absence management. Usually, a tax provision would not excite me in the least. However, a tax code that allows for a business credit for certain eligible employers who provide paid family and medical leave? Now, you have my attention.
Yours too? Read on, friend! In the recent Tax Cut and Jobs Act, the provisions allow for an eligible employer to take a tax credit for a calculated amount equal to an applicable percentage of the amount of wages paid to qualifying employees on a family and medical leave. These bolded terms require definitions, as seen below.
- Eligible employer = An employer that provides a certain level of paid family and medical leave to their employees.
- Calculated amount = A general business tax credit equal to 12.5% of the wages the employer pays to qualifying employees when the employee takes “family and medical leave.” The credit will increase by a quarter percentage point for every percent above the 50% rate the employer pays the employee on leave, up to a maximum tax credit of 25% if the employer pays the employees 100% of their regular wages. This credit is available for up to 12 weeks of paid leave per employee per year.
- Qualifying employee = An individual who is employed by the employer for at least a year, and paid no more than $72,000 for 2017 (and adjusted as time moves on).
- Family and medical leave = The tax provision incorporates the definitions used in the Family Medical Leave Act (“FMLA”), but do not tie the tax credit to covered employers, as defined by the FMLA.
The catch here is that the employer is required to have a written policy that provides two weeks of paid leave for family and medical leave at not less than 50% of wages for full time, and a prorated amount for part-time, employees. But wait – the two weeks of paid leave cannot be provided as vacation, personal, medical, or sick leave. In order to be considered for the tax credit, the paid family and medical leave has to be a separate provision in the employer’s policies. Your company’s current PTO policy will not likely qualify for the tax credit.
While we expect additional regulations explaining and interpreting this provision to be published, think about how your company can take advantage of this provision in the future by reconsidering and redrafting paid time off provisions. If you have questions, we are happy to help!