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Norman G. Grill: New employer tax credit for family and medical leave

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Thanks to the passage of the Tax Cuts and Jobs Act (TCJA) last year, there’s a new tax benefit for employers: the employer credit for paid family and medical leave. As the name implies, employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.

Here are seven facts about this credit and how it benefits employers:

  1. To claim the credit, employers must have a written policy that meets certain requirements such as:
  • Providing at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
  • Providing paid leave that is not less than 50 percent of the wages normally paid to the employee.
  1. A qualifying employee is any employee who has been employed for one year or more, and for the preceding year, had compensation that did not exceed a certain amount. To be a qualifying employee in 2019, an employee must have earned no more than $72,000 in compensation in the preceding year. Looking ahead, to be a qualifying employee in 2020, an employee must have earned no more than $75,000 in compensation in the preceding year.
  2. “Family and medical leave” as defined for this particular credit, is leave that is taken 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.
  • To 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 perform the functions of his or her position.
  • Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the U.S. Armed Forces.
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin.
  1. The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.
  2. To be eligible for the credit, an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Any wages taken into account in determining any other general business credit may not be used toward this credit.
  3. The credit is generally effective for wages paid in taxable years of the employer beginning after Dec. 31, 2017. It is not available for wages paid in taxable years beginning after Dec. 31, 2019, i.e., starting Jan. 1, 2020.
  4. To claim the credit, employers file two forms with their tax return: Form 8994, Credit for Paid Family and Medical Leave and Form 3800, General Business Credit.

This has been an informational discussion and is not intended as advice. Taxes can be complicated, so consider getting professional advice about the employe medical and family leave tax credit.

Norm Grill (N.Grill@GRILL1.com) is managing partner of Grill & Partners LLC, (www.GRILL1.com) certified public accountants and advisers to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203-254-3880.

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