Employers should be aware of a new tax credit that has been born of the Tax Cuts and Jobs Act. The credit is available to employers that offer paid family and medical leave to qualifying employees. We are reaching out to you about this credit because as of right now, the tax credit doesn’t look to have a long shelf life. Unless Congress eventually extends it, we are working with a two year window that opened on 1/1/18 and will close on 12/31/19.
The employer must have a true paid family and medical leave policy in place to qualify for this new tax credit. Because time is of the essence, employers should be reevaluating their current policies or putting new ones in place if needed.
When it comes to this particular credit, family and medical leave is defined as an employee’s need for leave for the following reasons:
- Birth, adoption, or fostering of a child, and to care for that child.
- Care for a spouse, child, or parent with a serious health condition.
- Employee’s serious health condition.
- Qualifying need arising when a spouse, child, or parent is on covered active duty (or has been notified of a call or order to covered active duty) in the Armed Forces.
- Care for a spouse, child, or parent who is a covered veteran or member of the Armed Forces.
We want to make sure that the eligibility terms for this tax credit are not confused with the benefits presented by FMLA. This credit isn’t designed to be offered to only the employees who are eligible for FMLA coverage. It is also important to note that employer-provided leave paid as vacation leave, personal leave, or medical or sick leave (other than specifically defined as qualifying leave) isn’t considered family and medical leave eligible for the credit . Also, if the respective leave that is paid by the state or local government or required by a state or local law, it won’t be considered when determining the amount of paid family and medical leave that is eligible for the credit.
A “Qualifying Employee” for the purposes of this tax credit is an employee who has been with the company for one year or more and, in the preceding year, didn’t have compensation in excess of 60% of the threshold for a highly-compensated employee. Highly-compensated is classified as $120,000 annually for both 2018 and 2017. Again, this criteria is different than FMLA which generally applies to an employee who has been employed by the employer for at least 12 months, worked at least 1,250 hours over the past 12 months, and worked at a location where the company employs 50 or more employees within 75 miles
Let’s take a look at what other eligibility factors in play:
- The employer must provide at least two weeks of annual paid family and medical leave to qualifying full-time and part-time employees… for those at part-time status the length of leave is prorated based on the calculation of hours the employee usually works during a week compared to the hours a full-time employee. Part-time status for this credit is considered any employee that works fewer than 30 hours per week.
- How much an employer pays a qualifying employee on leave is a part of the edibility picture. The employee must be compensated at least 50% of their normal wages. An employer that isn’t covered by (FMLA) must include in its written policy a no retaliation statement that it won’t interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy, and it won’t discharge or discriminate against any individual for opposing any practice prohibited by the policy.
How much is the credit worth?
Eligible employers who meet all of the criteria we outlined above are allowed a credit of 12.5% of the amount of wages paid to qualifying employees who are on family and medical leave, if the employer pays 50% of the wages normally paid to the employee. The credit is increased by 0.25% (but not above 25%) for each percentage point the wages paid to the employee exceed 50% of the employee’s normal wages. The maximum length of paid family and medical leave that can qualify for the credit is 12 weeks per employee. The total credit attributable to one employee for a tax year must not exceed the employee’s normal hourly rate for each hour of actual work performed for the employer multiplied by the number of hours family and medical leave is taken. The wages for an employee who isn’t paid an hourly wage rate are prorated to an hourly wage rate to determine the credit limit.
Now is the time to reach out to your H&M advisor for assistance with this matter. We are still learning more about the credit itself and how we can assist you with claiming it. The sooner we can take a look at your policy (or help you craft one to implement), the sooner we can work towards securing this credit for you.