By Gina Lemons
As part of the Tax Cuts and Jobs Act, The Employer Credit for Paid Family and Medical Leave (FMLA) went into effect September 25, 2018. The credit is applicable to wages paid in tax years beginning after December 31, 2017 and before January 1, 2020.
To be eligible for this credit, the employer must meet these requirements.
- Have a written policy in place before qualifying employee goes on FMLA
- Allow at least two weeks of paid leave to full-time employees
- Allow a prorated amount of paid leave for part-time employees
- Paid leave must be at least 50% of the wages normally paid to that employee
- The employee’s annual compensation must be $72,000 or less
The written policy must provide certain protection applicable under the Family and Medical Leave Act of 1993, regardless of whether they otherwise apply. Although the written policy is required to be in place before the qualifying employee goes on FMLA, the employer is allowed a transition period for the first taxable year beginning after December 31, 2017.
For example, the employer’s taxable year ends December 31, 2018. An employee took unpaid Family and Medical Leave beginning June 1, 2018. The employer adopts a written policy that satisfies all requirements on December 1, 2018, and chooses to make the policy effective retroactive to January 1, 2018. The employer pays the employee for two weeks of unpaid leave taken in June. Assuming all other requirements are met, the employer may claim the credit on the 2018 tax return.
A qualifying employee means any employees who has been employed by the employer for 1 year or more; and for the preceding year, had compensation that was not more than 60% of threshold for highly compensated employee. For the 2018, the compensation limit is $72,000.
Qualifying paid leave is defined and described in the Family and Medical Leave Act of 1993.
- Birth of employee’s child and care for the child
- Placement of child with employee for adoption or foster care
- To care for employee’s spouse, child or parent who has a serious health condition
- A serious health condition that make the employee unable to perform his/her job
- Any qualifying exigency due an employee’s spouse, child or parent being on active duty
- To care for service member who is employee’s spouse, child, or parent, or next of kin
Qualifying paid leave does not include vacation leave, personal leave, or sick leave not specified in FMLA rules.
The credit begins at 12.5% and cannot be more than 25% of paid FMLA for each qualifying employee while on FMLA for up to 12 weeks per taxable year. The employer must reduce the deduction amount for Salaries and Wage Expense by the amount of the credit.