The Tax Cuts and Jobs Act created a new tax credit for eligible employers that voluntarily provide up to 12 weeks of paid family and medical leave to qualifying employees. This new credit is available for tax years beginning January 1, 2018, through December 31, 2019, unless extended by Congress. The employer must have a written policy in place that provides at least two weeks of paid family and medical leave at a payment rate that is at least 50% of an employee’s normal pay rate.
The credit is based on a percentage of wages paid to qualifying employees on family and medical leave. The rate begins at 12.5%, increases by 0.25% for each percentage point the wages paid exceed 50% of the employee’s normal wages, and is capped at 25%.
ABC Inc. pays $15,000 to a qualifying employee for family and medical leave, which is 50% of the employee’s normal wage. ABC Inc. is eligible for $1,875 ($15,000 x 12.5%) of paid family and medical leave credit.
The new law requires that employers have a written policy in place with the following requirements:
Qualifying employees must be employed for at least one year and, in the preceding year, paid no more than 60% of the highly-compensated employee threshold. (For example, a qualifying employee in 2018 could not be paid more than $72,000 ($120,000 x 60%) in 2017.)
If you have any questions, please contact a member of your Porte Brown advisory team at 847-956-1040.
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