If your organization wants to claim the new family and medical leave credit, take note: The IRS has issued Form 8994, Employer Credit for Paid Family and Medical Leave, for use in 2018 and 2019 tax year filings. In addition, the IRS has posted new information about the credit on its website. Here’s what you need to know.

Credit Basics

The leave credit was authorized by 2017’s Tax Cuts and Jobs Act. Under the law, an employer can qualify for a credit if it provides qualified employees with leave of at least two weeks and pays at least 50% of the worker’s regular earnings during that period. Of course, an employer can choose to pay the employee’s regular salary during the leave period.

This credit can be valuable to your organization. If you pay 50% of an employee’s regular pay rate while the individual is on leave, the credit will be equal to 12.5% of wages. This percentage gradually increases until it maxes out at 25% for employers that pay full wages.

To qualify, you must offer leave time to both full- and part-time employees who have worked for you for more than one year. You also must establish a written policy on family and medical leaves. Finally, “double-dipping” isn’t permitted. In other words, if you claim the leave credit, you can’t also deduct the employee’s wages as regular business expenses.

Digging into Details

As with claiming most tax credits, the devil is in the details. Following are several questions and answers to help employers with tax planning:

Q. For the purpose of the credit, who’s considered a qualified employee?

A. A qualified employee is any worker under the Fair Labor Standards Act whom your organization has employed for at least one year. However, the credit isn’t available for employees who are paid more than $72,000 annually (indexed for inflation).

Q. What is a “qualified leave?”

A. The rules are essentially the same as they are for leaves under the Family and Medical Leave Act (FMLA). This means leave can generally occur for these reasons:

  • Birth of an employee’s child and to care for the child,
  • Adoption or foster care placement of a child with the employee,
  • To care for the employee’s spouse, child or parent who has a serious health condition;
  • A serious health condition that makes the employee unable to perform his or her job functions;
  • Any qualified exigency due to an employee’s spouse, child or parent being on covered active Armed Forces duty, or
  • To care for a service member who is the employee’s spouse, child, parent or next of kin.

If you provide paid vacation, personal or sick leave (or leave that isn’t specified for one or more of the reasons listed above), the paid leave is not considered family and medical leave.

Q. What must be included in a written policy?

A. Your plan needs to state that your organization provides:

  • At least two weeks of paid leave for all qualified employees who work full-time, and that part-time employees are eligible for prorated benefits; and
  • The amount paid during leave will be at least 50% of the wages normally paid to the employee.

Your written plan must be in place on the latter of 1) the policy’s adoption date or 2) its effective date.

Q: How is the credit calculated?

A: Generally, the credit is a percentage of the amount of wages paid to a qualified employee while on family and medical leave, for up to 12 weeks per tax year. The minimum percentage of 12.5% is increased by 0.25% for each percentage point by which the amount paid to a qualified employee exceeds 50% of his or her wages. The maximum credit is 25% of wages.

For example, if a company pays an employee 70% of his or her regular pay on wages of $10,000, the company can claim a credit of 17.5% of the wages, or $5,250.

Q: What’s the effective date of the credit?

A: The credit is generally effective for wages paid by your organization in tax years starting after 2017. Currently, it isn’t available for wages paid after 2019.

Time Running Out

Time is running out if your company wants to take advantage of this unique tax break. The leave credit is only available for 2018 and 2019 — although Congress could extend it. Discuss this tax break and other tax issues with your professional advisors.

TESTIMONIALS

As we’ve grown, so have our administrative and payroll needs. That’s why we’ve partnered with HR&P. HR&P supports us every day with human resources, payroll, benefits and compliance so we can focus on being the best BB’s Cafe we can be!

Brooks Bassler, Owner, BB's Cafe

Since 2010, my company has grown to over five hundred employees. With our tremendous growth we needed a human resources and payroll company that could grow with us. That company is HR&P. And as laws have changed, like the Affordable Care Act, HR&P has kept us in compliance. I focus on growing Twin Eagle. I trust HR&P with the rest.

Chuck Watson, Chairman, Twin Eagle

We are the industry leader in Oil Spill Cleanup Products and have dealt with numerous Oil Spill disasters. Knowing up close what a disaster looks like we choose to avoid them in our offices. HR&P guides us through the land mines of HR, Payroll and Benefit compliance so my team can focus solely on helping our clients with their problems, and we avoid our own.

Chad Clay, Owner, CEP Sorbents

One of the best things we did for our business was to partner with HR&P. They’re the experts in human resources, payroll and benefits administration.
HR&P’s web based solutions make it easy for us to manage our employee’s needs. They also help us stay compliant with the Affordable Care Act and with “the alphabet soup” of constantly changing Governmental regulations.

Ken Dennard, CEO, Dennard—Lascar Associates

I run a restaurant, from early in the morning to late at night, our team works hard to deliver great food in a fun atmosphere.
But there’s a lot more to running a business like human resources, payroll, benefits and compliance. So we turn to HR&P.
Outsourcing to HR&P keeps us focused on our business.

Marcus Payavla, Co-Owner, Orleans Seafood Kitchen

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