Overview
Tax reform legislation enacted in December 2017 offers a new tax credit for employers who provide paid family and medical leave. Below are key facts about how this credit works and which employers are eligible to claim it.
Eligibility and Timeframe
- The credit is available for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020.
- Some employers can claim the credit retroactively to the beginning of their first taxable year beginning after December 31, 2017, if they meet the terms of a transition rule on or before December 31, 2018.
Requirements for Employers
To be eligible for the credit, an employer must have a written policy in place that includes:
- At least two weeks of paid family and medical leave annually for full-time employees, prorated for part-time employees.
- Pay for family and medical leave that’s at least 50 percent of the wages normally paid to the employee.
Additionally:
- Generally, for tax year 2018, the employee’s 2017 compensation from the employer must be $72,000 or less.
Credit Details
- The credit ranges from 12.5 percent to 25 percent of wages paid during an employee’s leave.
Qualifying Reasons for Leave
For purposes of this credit, family and medical leave includes leave for one or more of the following reasons:
1. Family Growth and Childcare
- Birth of an employee’s child and to care for the child.
- Placement of a child with the employee for adoption or foster care.
2. Family Caregiving
- Care for the employee’s spouse, child or parent who has a serious health condition.
3. Employee Health
- A serious health condition that makes the employee unable to perform the functions of their position.
4. Military-Related Leave
- Any qualifying need due to an employee’s spouse, child or parent being on covered active duty in the Armed Forces. This includes notification of an impending call or order to covered active duty.
- To care for a service member who’s the employee’s spouse, child, parent or next of kin.
Frequently Asked Questions
Who is eligible to claim the paid family and medical leave tax credit?
Employers who provide paid family and medical leave and have a qualifying written policy in place are eligible. The policy must offer at least two weeks of paid leave to full-time employees (prorated for part-time) and pay at least 50% of usual wages.
What is the time frame for claiming this tax credit?
The credit applies to wages paid in taxable years starting after December 31, 2017, and before January 1, 2020. Employers meeting certain conditions could also retroactively claim it from the start of their 2018 tax year if they complied by December 31, 2018.
How much is the tax credit worth?
The tax credit ranges from 12.5% to 25% of the wages paid during qualifying family and medical leave. The percentage depends on the wage replacement rate provided by the employer.
What types of leave qualify under this credit?
Eligible leave includes time off for birth, adoption, foster care placement, caring for seriously ill family members, the employee’s own health condition, and certain military-related needs or caregiving responsibilities.
Are there compensation limits for employees to qualify?
Yes, generally for the 2018 tax year, the employee must have earned $72,000 or less from the employer in 2017 to qualify under the program’s terms.