IRS Provides Details on Family Leave Tax Credit, but Guidance Still Lacking

The IRS has finally updated its website with information about the family leave tax credit that was included in the tax overhaul passed in December. The family leave tax credit allows employers to claim a tax credit for a certain percentage of their employees’ wages if the workers are provided with paid family or medical leave.

Employers qualify if they offer workers at least two weeks of leave at a minimum of 50 percent pay. The size of the credit varies based on the generosity of the benefit, from 12.5 percent to 25 percent of family or sick leave wages paid.

Companies located in jurisdictions that require paid sick leave will be disappointed to learn that they are not eligible for the credit. This means that businesses in some of the country’s largest population centers, including California and New York, won’t benefit from the new provision.

Employers are able to claim the credit only for workers who make less than $72,000 a year. Similarly, employers are eligible only if they have a written paid family/medical leave policy that is separate from the rest of the worker’s paid time off package. Employers that offer generous PTO benefits that can be claimed for any reason—vacation, personal days, sick leave—do not qualify.

Also noteworthy: An employer that claims the leave credit must reduce the amount of wages it deducts by a commensurate amount. As SHRM explains, if an employee makes $50,000 a year but receives $1,250 of paid leave in a particular year, the employer can deduct only $48,750 in wages in the year that it claims the $1,250 credit.

Experts who spoke to SHRM say that while the factual information provided by the IRS about the credit is useful, the federal government has still not done enough to offer guidance to companies trying to figure out whether the credit is worth it.

While the tax credit was one of a number of provisions of the tax bill that Democrats did not denounce, it has also been derided by progressives as falling far short of what is needed when it comes to paid sick or family leave, particularly after the birth of of a child. The United States is the only industrialized country that does not require employers to provide a certain amount of paid time off to women following childbirth.

From: BenefitsPro