IRS Tax Reform Tax Tip 2018-183, November 28, 2018
Tax reform legislation enacted in December 2017 offers a new tax credit for employers who provide paid family and medical leave. Here are several facts about how this credit works and which employers are eligible to claim it:
- The credit is available for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020.
- Some employers can claim the credit retroactively to the beginning of their first taxable year beginning after December 31, 2017, if they meet the terms of a transition rule on or before December 31, 2018.
- To be eligible for the credit, an employer must have a written policy in place that includes:
- At least two weeks of paid family and medical leave annually to full-time employees, prorated for part-time employees.
- Pay for family and medical leave that’s at least 50 percent of the wages normally paid to the employee.
- Generally, for tax year 2018, the employee’s 2017 compensation from the employer must be $72,000 or less.
The credit ranges from 12.5 percent to 25 percent of wages paid during an employee’s leave.
For purposes of this credit, family and medical leave includes leave for one or more of the following reasons:
- Birth of an employee’s child and to care for the child.
- Placement of a child with the employee for adoption or foster care.
- Care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to do the functions of their position.
- Any qualifying need due to an employee’s spouse, child or parent being on covered active duty in the Armed Forces. This includes notification of an impending call or order to covered active duty.
- To care for a service member who’s the employee’s spouse, child, parent or next of kin.