Businesses have another reason to be excited about the Tax Cuts and Jobs Act—a business credit for providing their employees with paid family and medical leave.
Effective for the 2018 and 2019 tax years, the credit is available to employers who offer such leave to employees who were paid less than $72,000 in 2017. The following conditions must be met:
- The employer provides full-time employees with at least two weeks of paid family and medical leave (pro-rated for part-time employees)
- The pay during leave must be at least 50% of the employee’s normal wages.
The credit is equal to 12.5% (up to 25%) of the amount of wages paid to qualifying employees during any period in which the employees are on family or medical leave. A larger credit can be earned; for each percentage point the rate of pay is above 50, the government will reimburse as a tax credit an additional .25% of the benefit’s costs.
For example, Smith Company provides paid family and medical leave equal to 60% of employee wages. The company would get not only the base 12.5% credit, but also an additional 2.5% (0.25% x 10 percentage points over the 50% requirement)—for a total tax credit of 15% of eligible wages. Therefore, Smith Company is reimbursed for 15% of its plan costs under the new guidance.
If your company sets up qualifying paid family leave programs (or amends existing programs) by year end, you can claim this credit retroactively to the beginning of your 2018 tax year. Otherwise, any qualifying plans set up or amended in 2019 makes your company eligible for the credit in that tax year.
There are additional caveats and requirements, including whether a plan qualifies if your state mandates such coverage. You can read the IRS’s Notice 2018-71 for details of this and other provisions.
If you have offered a paid family and medical leave policy to your employees, we strongly recommend that you contact the business tax CPAs at James Moore. We’ll help you see whether you can take advantage of this potentially big tax benefit.
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