Tag Archives: tax cuts

IRS Rules Issued On Paid Family and Medical Leave Credit

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

Tax Cuts and Jobs Act Update

The Tax Cuts and Jobs Act (TCJA) was passed by Congress in a hurry late last year, and the IRS has been working to implement the changes for 2018. Here are the latest answers to some of the most common questions about the tax overhaul:

Is home equity interest still deductible? The short answer is: Not unless you’ve used the money to buy, build or substantially improve your home.

Before the TCJA, homeowners were able to take out a home equity loan and spend it on things other than their residence, such as to pay off credit card debt or to finance large consumer purchases. Under the old tax code, they could deduct interest on up to $100,000 of such home equity debt.

The TCJA effectively writes the concept of home equity indebtedness out of the tax code. Now you can only deduct interest on “acquisition indebtedness,” meaning a loan used to buy, build or substantially improve a residence. If you took out a home equity loan pre-2018 and used it for any other purpose, interest on it is no longer deductible.

I’m a small business owner. How do I use the new 20 percent qualified business expense deduction? Short answer: It’s complicated and you should get help.

Certain small businesses structured as sole proprietors, S corporations and partnerships can deduct up to 20 percent of their qualified business income. But that percentage can be reduced after your taxable income reaches $157,500 (or $315,000 as a married couple filing jointly).

The amount of the reduction depends partly on the amount of wages paid and property acquired by your business during the year. Another complicating factor is that certain service industries including health, law, consulting, athletics, financial services and accounting are treated differently.

The IRS is expected to issue more clarification on how these rules are applied, such as when your business is a mix of one of those service industries and some other kind of business.

What are the new rules about dependents and caregiving? There are a few things that have changed regarding dependents and caregiving:

Deductions. Standard deductions are nearly doubled to $12,000 for single filers and $24,000 for married joint filers. The code still says dependents can claim a standard deduction limited to the greater of $1,050 or earned income plus $350.

Kiddie Tax. Unearned income of children under age 19 (or 24 for full-time students) above a threshold of $2,100 is now taxed at a special rate for estates and trusts, rather than the parents’ top tax rate.

Family credit. If you have dependents who aren’t children under age 17 (and thus eligible for the Child Tax Credit), you can now claim $500 for each dependent member of your household for whom you provide more than half of their financial support.

Medical expenses. You can deduct medical expenses higher than 7.5 percent of your adjusted gross income as an itemized deduction. You can claim this for medical expenses you pay for a relative even if they aren’t a dependent (i.e. they live outside your household) as long as you provide more than half of their financial support.