A new general business tax credit is allowed for wages paid under a Family and Medical Leave Act (FMLA) policy for tax years 2018 – 2019. The credit is based on the amount of wages paid to the qualifying employee while on leave. The amount of the credit can range anywhere from 12.5% – 25% of the wage paid per hour while the employee is on leave. If you pay the employee 50% of their regular wage per hour, you would get a 12.5% tax credit. If you pay the employee more than 50% of their regular wage while on leave, the amount of the tax credit will increase incrementally, up to a maximum of 25% of wages paid while on leave.
A qualifying employee must:
- Be employed with employer for 1 year prior
- Must not have earned more than $72,000 in the prior year (this amount is adjusted annually for inflation)
In order to claim the credit, employers must
- Have a written policy in place that meets the requirements
- Provide at least 2 weeks of paid family and medical leave annually for both full time and part time (if part-time, then would be a prorated basis)
- Paid leave is not less than 50 percent of wages
Family and medical leave for the purpose of the credit is one of the following:
- Birth of a child or care of a child
- Placement of a child with employee for adoption or foster care
- Care for employee’s spouse, child or parent due to serious health condition
- Employee’s serious health condition
- Any qualifying exigency due to an employee’s spouse, child or parent being on covered active duty
- Care for a service member who is the employee’s spouse, child parent or next of kin.
Paid vacation, personal, medical, or sick leave does not count.
If you are able to take the credit, just note that the amount of the credit reduces your wage expense deduction on the company’s tax return. (It’s still better to take the tax credit, however, since it will reduce your tax liability dollar-for-dollar, while business expenses only reduce your taxable income dollar-for-dollar.)