Does your business help provide support for working families through a paid family and medical leave policy? If it does or you are considering adding such a policy, you should know that Congress has recently passed new tax incentives for employers who provide these benefits. The Tax Cuts and Jobs Act of 2017 created a new nonrefundable federal tax credit for eligible employers who provide paid family and medical leave to qualifying employees. As of this posting, it is a temporary credit which will be available for tax years 2018 and 2019. Below, you will find a summary of eligibility requirements and credit limits.

Which employers are eligible?

To be eligible as an employer, you must have a written policy that provides qualifying employees the option to take paid family and medical leave. Full-time qualifying employees must be offered at least two weeks of FMLA, while part-time qualifying employees must be offered a pro-rated amount of FMLA. Employers must also pay employees at least 50 percent of their normal wages while they are on leave to benefit from the credit.

What is a qualifying employee?

A qualifying employee:

  • Has been working for the employee for at least one year, and
  • Did not receive compensation above a certain threshold in the previous year. For tax year 2018, qualifying employees must have been paid $72,000 or less in 2017. This threshold may be adjusted in future years.

Are other types of paid leave included in the credit?

Only paid family and medical leave qualifies for this credit. Paid leave for vacation, personal time, or other medical or sick leave does not count toward the two week eligibility requirement.

How much of a credit will employers receive for providing paid family and medical leave?

Eligible employers can receive a credit for between 12.5 percent and 25 percent of wages paid during the leave period. The credit starts at 12.5 percent if the worker is paid 50 percent of normal wages during leave. The credit goes up by 0.25 percent for every 1 percent that the paid leave rate goes above 50 percent of normal wages. For example, if the employee is paid 60 percent of normal wages during the leave period, the credit would increase by 2.5 percent, for a total credit of 15 percent of wages. If a worker is paid 100 percent of their normal compensation during the leave period, the employer can take the maximum credit of 25 percent of wages paid.

There is also a limit on the amount of leave per employee that remains eligible for the credit. An employer can use the credit for up to 12 weeks of paid family and medical leave per employee.

In summary, whether your business already provides paid family and medical leave or you plan to add these benefits in the near future, the FMLA tax credit will reward you for creating a healthy work-life balance for your employees.