Employers wanting to take advantage of the new paid leave tax credit that was part of the new tax law will pretty much have to follow the language of the law in order to do so, since no guidance has yet been issued by either the IRS or the Treasury Department.
The Society for Human Resource Management reports that although the duration of the credit isn’t long—just 2018 and 2019, unless Congress changes it—there’s been interest on the part of employers in moving ahead with it, in the hope that it might be made permanent.
But in the absence of official guidance, FAQs or proposed or interim tax regulations, the report suggests that to take advantage of the tax credit when paying 2018 business taxes, employers and their advisors should make sure, first of all, that it’s covered in a written policy and treated separately from the company’s paid time off policy.
The report cites the tax act’s Section 13403, Employer Credit for Paid Family and Medical Leave, as specifying that “eligible employers can claim a general business credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act.”
To do so, employers have to provide at least two weeks of leave, paid at a minimum of 50 percent of employees’ regular earnings, with the credit ranging from 12.5 percent to 25 percent of the cost of each hour of paid leave, depending on how much of a worker's regular earnings the benefit replaces. The sliding scale will provide a 12.5 percent credit of the benefit’s costs if workers are paid half their regular earnings; that rises incrementally up to 25 percent if they receive their full regular earnings.
Workers have to have been employed at the organization for at least a year, and paid no more than $72,000 for 2017. Both full- and part-time workers, if they satisfy the employment requirement, must be offered paid leave for the employer to claim the credit, with part-timers allowed a commensurate amount of paid leave, prorated.
Julie Pugh, a Cincinnati-based labor and employment attorney with the law firm Graydon, is quoted in the report saying, “The tax provision incorporates the definitions used in the FMLA but does not tie the tax credit to covered employers as defined by the FMLA.”
Pugh adds, “The catch here is that the employer is required to have a written policy that provides at least two weeks of paid leave for family and medical leave at not less than 50 percent of wages for full-time, and a prorated amount for part-time, employees. The two weeks of paid leave cannot be provided as vacation, personal, medical or sick leave.”
She points out that 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.”
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