Under a new provision created by the Tax Cuts and Jobs Act (TCJA), for the tax years 2018 and 2019 you may qualify for a tax credit if you set up or amend a paid-family leave program. Under Section 45S of the Internal Revenue Code, employers that voluntarily offer qualifying employees up to 12 weeks of paid family and medical leave annually under a written policy, may claim the credit.

To receive this credit, the employer must provide at least two weeks of paid time off for employees taking leave that would otherwise be unpaid under the FMLA. The employer must also compensate their workers a minimum of 50% of their regular earnings to qualify.

For its part, the government will cover 12.5% of the benefit’s cost if workers receive half of their regular earnings and up to 25% if they receive their full, regular earnings.

In IRS Notice 2018-71, the IRS provides detailed guidance on how employers may calculate their eligibility for the credit under a variety of scenarios. The qualifying FMLA leave does not include paid sick days or minor illness, but only those causes considered valid for FMLA.

An employer does not have to provide paid time off for every type of FMLA leave to qualify for the credit. For example, they can pay maternity/paternity leave but not for serious medical issues.

Does your organization qualify for the FMLA Tax Credit? Should you file an amended return for 2018 to take advantage of this tax credit? Contact your Zinner tax professional to find out!

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