Certain employers may be eligible to receive a credit for paid family and medical leave in tax years after 2017. The IRS recently released Form 8994 and Instructions for how to claim the credit.
An eligible employer is one with a written policy providing paid family and medical leave satisfying minimum paid leave requirements. Paid vacation does not count as paid FMLA. Family and medical leave means leave for one or more FMLA purposes, including:
- Birth of a son or daughter of the employee and in order to care for the son or daughter
- The placement of a son or daughter with the employee for adoption or foster care
- Caring for the spouse, or a son, daughter or parent of the employee, if the spouse, son, daughter or parent has a serious health condition
- A serious health condition that makes the employee unable to perform the functions of the employee’s position
- Any qualifying exigency arising out of the fact that the spouse or a son, daughter or parent of the employee is a member of the US Armed Forces
- Caring for a service member with a serious injury or illness if the employee is the spouse, son, daughter, parent or next of kin of the service member.
A qualifying employee is an employee who has been employed by the employer for 1 year or more and whose compensation for the preceding year doesn’t exceed an amount equal to 60% of the amount applicable for the year under Code section 414(q). To be a qualifying employee in 2019, an employee must have earned no more than $72,000 in the preceding year.
For an employer to claim the credit, the policy must:
- Provide at least 2 weeks of annual paid family and medical leave to all qualifying employees who are not part time employees, and at least a proportionate amount of paid family and medical leave to qualifying employees who are part-time employees.
- Require a rate of payment that is not less than 50% of the wages normally paid to the employee for services performed for the employer.
- Have a written policy including certain language requirements.
Any leave paid by a state or government or required by state or local law is not taken into account in determining the amount of paid family and medical leave provided by the employer.
Employers may be able to claim a credit for the cost of the leave provided to eligible employees. The applicable percentage of the credit is based on the rate of payment for the leave under the employer’s policy. The base applicable percentage is 12.5%, which applies if the rate of pay is 50%. If the rate of pay is greater than 50%, the applicable percentage is increased by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50%, up to a maximum applicable percentage of 25%.
The credit is claimed using Form 8994. A copy of that form, with instructions, may be accessed by clicking here.
