PSVS Blog

PSVS posts about once a month, but frequently more often. If you would like to be notified when new blogs are posted, please subscribe to our newsletter.

If you have questions about this post, please leave a comment or contact us.

Leave a comment

Tax Credit for Family Leave Wages

(posted: March 26th, 2018)

A provision that has flown under the radar in the new tax law may actually be of interest to qualified businesses, potentially offering a big tax benefit.

The Tax Cuts and Jobs Act (TCJA) includes a brand-new tax credit of up to 25% of family and medical leave wages, beginning in 2018. Of course, there are certain requirements that must be met.

The IRS has yet to issue guidance on this new tax break, but, here are the basics of what we know now.

Under the Family and Medical Leave Act (FMLA), an employer with 50 or more employees is required to provide an unpaid family and medical leave to workers employed longer than one year. But your company doesn't have to fall under the FLMA mandate to qualify for the credit. Thus, it's available to businesses of all shapes and sizes.

To qualify for the credit, an employer must provide a leave of at least two weeks at a rate of at least 50% of regular earnings.

The credit percentage ranges from 12.5% to 25% of a paid leave, depending on the rate of the wages paid. For starters, the credit is equal to just 12.5% of the wages if the employer pays the minimum 50% of the regular pay rate.

Some employers choose to pay the full regular wages of workers who go out on leave. In that case, the employer is entitled to the maximum 25% credit.

For example, say a worker is normally paid at a rate of $25 an hour and works 40 hours a week, for a weekly total of $1,000. If the employer pays her 60% of the regular wage or $15 an hour and she takes a leave of twelve weeks, the pay comes to $7,200. On these facts, the credit percentage is 15%, so the employer may cut $1,080 (15% of $7,200) from its tax bill.

However, the credit is available only for wages paid to workers employed at the company for at least a year who are paid no more than $72,000 annually. Going forward, this limit will be adjusted for inflation.

Family and medical leaves must be available to both full-time and part-time workers who have been with the employer for more than one year. Otherwise, the employer can't claim the leave credits. The employer must also establish a written policy regarding leaves.

Note that "double dipping" is not allowed. So, if an employer claims the credit, it can't also deduct the wages as regular business expenses. But the credit will often be more valuable to employers than the deduction.

Finally, be aware that the credit has an extremely short life, currently scheduled to expire after 2019. Of course, Congress could extend this credit if it proves to be popular with employers.

Please contact us with questions about the family and medical leave wages tax credit.

Feedback

Leave a comment

close form

Blog Feedback Form

first name: last:

Email Address and Last Name are required for security ONLY they do NOT appear with your post.

Allow 10 minutes between posts.

All post are subject to moderation.

email:

feedback (2000 chars):

Subscribe me to PSVS's E-Newletter

For Individuals

For Business

General Services

Real Estate

Audits

Advisory Services

Financial Services

Risk Management