Employers have access to a new federal tax credit starting this year. The new Employer Credit for Paid Family and Medical Leave Tax Credit provides employers an incentive to provide paid family and medical leave to their employees through 2019.
In order to claim the credit, an employer must first have a qualifying written plan, which includes the following provisions: Qualified full-time employees must have at least two weeks of paid family and medical leave per year (up to 12 weeks is allowed for credit purposes), part-time employees must receive a pro-rated share of paid leave, and employees must be paid at least 50% of normal wages.
The base amount of the credit is 12.5% of wages paid during the FMLA leave. For each additional percentage of normal wages paid, the credit percentage is increased by 0.25%. For example, if 100% of normal wages are paid, the credit percentage is 25%. A taxpayer cannot deduct a portion of the wages equal to the amount of the credit claimed.
The credit is not allowed for paid leave that is vacation leave, personal leave, or medical or sick leave (unless it qualifies under the FMLA). In addition, any leave which is paid by a state or local government or required by state or local law is not taken into account in determining the amount of paid leave provided by the employer.