Claiming the New Employer Tax Credit for Family and Medical Leave​

You compete for employee talent in a variety of ways, including perhaps by implementing a medical and family leave policy.
 
The good news on this front is that your federal government may have given you a tax credit (yes, that lovely dollar-for-dollar offset to your taxes) for what you wanted to do anyway. The Tax Cuts and Jobs Act (TCJA) establishes a new federal income tax credit for employers that provide qualifying paid family and medical leave benefits to their employees.
 
This new tax credit is available for two employer tax years only—those beginning between January 1, 2018, and December 31, 2019. If your business operates on a calendar year for tax purposes, you can put your business in a position today to claim the tax credit for both the 2018 and 2019 tax years. But you will need to hurry.
 
If eligible, you can claim a credit equal to 12.5 percent of wages paid to “qualifying employees” (defined later) who are on family and medical leave, as long as the leave payments are at least 50 percent of the normal wages paid to those employees.
 
You can increase the credit beyond the 12.5 percent. For each 1 percent increase in medical leave payments over the 50 percent threshold, the credit rate increases by 0.25 percent, up to a maximum credit rate of 25 percent. A qualifying employee is one who has been employed by your company for at least one year and whose compensation last year was less than $72,000.
 

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For purposes of qualifying for the credit, “family and medical leave” is defined as leave taken by a qualified employee for any of the following reasons:

• The birth of the employee’s son or daughter, in order to care for the son or daughter.
• The placement of a son or daughter with the employee for adoption or foster care.
• A serious health condition of the employee’s spouse, son, daughter, or parent.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter, or parent is a member of the US Armed Forces (including the National Guard and reserves) who is on covered active duty or has been notified of an impending call or an order to covered active duty.
• A serious injury or illness of a covered service member who is the employee’s spouse, son, daughter, parent, or next of kin.

 
Employer-provided vacation leave, personal leave, or medical or sick leave (other than qualifying leave as defined above) is not considered leave eligible for the credit. Also, leave that is paid by a state or local government or that is required by state or local law does not create leave eligible for the credit. The maximum length of paid family and medical leave taken by a specific employee who can qualify for the credit is 12 weeks per tax year of the employer.
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