The 2017 Tax Cuts and Jobs Act created a credit for some employers, and the IRS has finally issued guidelines businesses can use to apply for this paid family leave credit.
Businesses who paid family or medical leave to employees during 2018 and 2019 may qualify. During this same time, employers who set up or updated their paid family leave policies could also receive a retroactive credit.
According to the IRS, family and medical leave may be taken if the worker:
- Had a child
- Adopted or fostered a child
- Provided care for a child, spouse or parent suffering from a serious illness
- Suffered from a serious health issue that made work impossible
- Cared for a service member that is his or her spouse, parent, child or other next of kin
- Had a qualifying situation that occurred because a spouse, child or parent is a service member and was called to active duty
Employees need to have worked for the company for at least a year to qualify. Another qualification is the worker cannot have made more than $72,000 in 2017.
Employers must meet certain criteria to apply
For employers, there are also certain criteria to apply for the tax credit. The family and medical leave policy must give each qualifying worker at least two weeks off per year. During leave, the employees receive at least 50 percent of their typical pay.
The credit is based on what was paid to the worker
The employer credit is a percentage of what was paid to the worker, while he or she was on leave. For employers who paid 50 percent of the employee’s wages, the credit starts at 12.5 percent of the wages. The credit to the employer increases, as the percentage paid to the employee increases.
The tax credit provides relief to business owners and could encourage more companies to create these employee-friendly policies. However, even with the new guidance from the IRS, it can be difficult for an employer to navigate the rules. If you are unsure whether you qualify for the employer tax credit, you may consider reaching out to an experienced tax attorney.