According to the IRS, employers who offer paid medical and family leave to their employees may be eligible for a credit to reduce their tax liability. This employer credit for family and medical leave was added in 2018 by “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” and may mean big savings for business owners who qualify.
What Businesses Qualify?
In order to qualify for the credit, which equals a percentage of the medical and family leave wages paid by the company, the business must have a written policy for these types of leave which covers all employees who have been working for the company for at least one year and do not exceed the annual compensation threshold of $72,000.
The policy must allow at least two weeks of paid leave for full time employees, and a proportionate percentage of leave for part-time workers. In addition, the wages paid by the business during the leave period must be 50% or more of the recipient’s regular pay.
If the business employs people who are not covered by title I of the of the Family Medical Leave Act, the policy must also include “non-interference” protections, as outlined in Notice 2018-71.
How Much Is the Credit?
The credit depends on the amount paid to employees taking paid family and/or medical leave. It is generally between 12.5 to 25 percent of the leave wages paid by the business.
What Types of Leave Qualify?
Any leave taken by an employee in accordance with the Family Medical Leave act, including leave taken:
• for the birth of a child
• to care for a child
• for a foster care or adoption placement
• in order to take for a sick parent, child, or spouse
• because of a serious health condition that makes it impossible for the employee to perform their job
• to care for a member of the Armed Forces that is the employee’s child, spouse, parent, or next of kin
• because of an emergency due to the employee’s child, spouse, or parent being on active duty in the Armed Forces
How to Claim Your Credit
If you qualify for the employer credit for family and medical leave, you can claim it on your taxes by filing forms 8994, for Credit for Paid Family and Medical Leave, and form 3800, for General Business Credit.
Offering paid medical and family leave is a great way to take care of your employees in the event that they experience a life change due to the birth, adoption, or fostering of a child or a serious illness in their family. Beyond boosting employee loyalty and maintaining a strong team, doing so also has potential tax benefits through this leave credit, incentivizing business owners to provide leave by reducing their tax liabilities in a win-win for both company and employees.