Employer Tax Credit Available for Paid FMLA leave

The tax plan that was signed into law at the end of 2017 creates a new tax credit for employers.  The credit appears in Section 13403 of the Act, and applies to employers who pay employee leave under the Family and Medical Leave Act (“FMLA”).  The credit begins in 2018 and as of now, is set to expire at the end of 2019.  Although possibly short-lived, employers may want to claim the benefit while they can.

Employers may obtain a tax credit when they pay an employee while on FMLA leave.  Vacation leave, personal leave, or other sick leaves do not apply for purposes of this credit.  Employers may qualify for a credit up to 12.5% of the amount of wages paid to a qualifying employee, as long as they pay at least 50% of the employee’s normal wages.  The amount increases by 0.25% for every percentage point an employee’s FMLA wages exceed 50% of their normal wages, up to a maximum of 25%.  This credit is available for up to 12 weeks of paid leave per employee per year.

An employer will qualify for the credit when: (1) the employer allows a qualifying full-time employee to take at least two weeks of annual FMLA leave (with a pro-rata amount for part-time employees); and (2) the employer pays at least 50% of the employee’s normal wages.

An employee will qualify when: (1) she or he has been employed for one year or more; and (2) she or he was compensated in the previous year below 60% of the “highly compensated” threshold.  In 2018, this would be $72,000 or less.

Note that this does not create a federal requirement for paid leave, but merely offers employers an incentive when they choose to pay.  Employers who currently have paid leave under an established sick leave, vacation leave, or other policy, including a local or state required-program, should note that only FMLA-qualifying leave is eligible for the credit.

If you have any questions about the tax credit or FMLA leave in general, please contact Margaret Davis at mdavis@davisgrimmpayne.com or (206) 447-0182.

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