The IRS announced that eligible employers who provide paid family and medical leave to their employees may qualify for a new business credit for tax years 2018 and 2019. Notice 2018-71 provides detailed guidance on the new credit in a question and answer format. The credit was enacted in the 2017 Tax Cuts and Jobs Act.
The notice released clarifies how to calculate the credit including the application of special rules and limitations. Only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit. Generally, for tax year 2018, the employee’s 2017 compensation from the employer must have been $72,000 or less.
To claim the credit, an employer must have a written policy that satisfies the following requirements:
- The policy must cover all qualifying employees; that is, all employees who have been employed for a year or more and were paid not more than a specified amount during the preceding year, generally not more than $72,000 in 2017.
- The policy must provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee.
- The policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave.
- If an employer employs qualifying employees who are not covered by Title I of the FMLA, the employer’s written policy must include language providing “non-interference” protections, as described in Section A of Notice 2018-71. Thus, the written policy must incorporate the substantive rules that must be met for an employer to be eligible for the credit.
Any leave paid by a state or local government or required by state or local law is not taken into account for any purpose in determining the amount of paid family and medical leave provided by the employer, meaning those amounts do not qualify for the credit.
For purposes of the credit, an employer is any person for whom an individual performs services as an employee under the usual common law rules applicable in determining the employer-employee relationship. Wages qualifying for the credit are determined under the Federal Unemployment Tax Act (FUTA) rules but disregarding the $7,000 FUTA wage limit.
The notice is effective Sept. 24, 2018, and applies to tax years beginning after Dec. 31, 2017, until Dec. 31, 2019. The contents of the notice will be incorporated into proposed regulations, which the IRS is requesting comments on through Nov. 23.
Source: Journal Of Accountancy