IRS provides details on family leave tax credit, but guidance still lacking

The IRS has finally updated its website with information about the family leave tax credit that was included in the tax overhaul passed in December.

The family tax credit allows employers to claim a tax credit for a certain percentage of their employees’ wages if the workers are provided with paid family or medical leave.

Related: 4 new challenges for employers created by the tax act

Employers only qualify if they offer workers at least two weeks of leave at a minimum of 50 percent pay. The size of the credit varies based on the generosity of the benefit, from 12.5 percent to 25 percent of wages paid for each hour of family or sick leave.

Employers are only able to claim the credit for workers make less than $72,000 a year. Similarly, employers are only eligible if they have a written paid family/medical leave policy that is separate from the rest of the worker’s paid time off package. Employers that offer generous PTO benefits that can be claimed for any reason –– vacation, personal days, sick leave –– do not qualify.

Employers located in jurisdictions that require paid sick leave will be disappointed to learn that they are not eligible for the credit. That means that businesses in some of the country’s largest population centers, including California and New York, won’t benefit from the new provision.

Also noteworthy: by claiming the leave credit, the employer must also reduce the amount of wages they deduct by a commensurate amount. As SHRM explains, if an employee makes $50,000 a year but received $1,250 of paid leave in a year, the employer can only deduct $48,750 in wages after claiming the $1,250 credit.

Experts who spoke to SHRM say that while the factual information provided by the IRS about the credit is useful, the federal government has still not done enough to offer guidance to companies trying to figure out whether the credit is worth it.

While the tax credit was one of a number of provisions of the tax bill that Democrats did not denounce, it has also been derided by progressives as falling way short of what is needed when it comes to paid sick or family leave, particularly after the birth of of a child. The United States is the only industrialized country that does not require employers to provide a certain amount of paid time off to women following childbirth.