IRS Releases Paid Family and Medical Leave Credit Form

02/07/19

Author: ADP Admin/Monday, February 4, 2019/Categories: Compliance Corner

Newsletter Article Template Overview: The 2017 Tax Cuts and Jobs Act (TCJA) created a new employer tax credit available to employers who provide paid family and medical leave to their employees. The tax credit applies to wages paid to qualifying employees between January 1, 2018, and December 31, 2019. The Internal Revenue Service has now released Form 8994, titled “Employer Credit for Paid Family and Medical Leave,” and instructions to be used by an employer when claiming the credit.

Details:
Background
Beginning January 1, 2018, eligible employers may claim a general business credit equal to 12.5 percent of wages paid to qualifying employees during any period in which such employees are on paid family and medical leave, if the rate of payment under the employer’s leave program is at least 50 percent of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 percent.
  • For example, if an employee on Family and Medical Leave Act (FMLA) leave is paid 60 percent of their normal wages, the credit would increase to 15 percent of the wage amount (12.5% + (10% x 0.25 = 2.5%)).
  • In contrast, if an employee on FMLA leave is paid 100 percent of their normal wage, the credit would be 25 percent of the wage amount (12.5% + (50% x 0.25 = 12.5%)).
The tax credit applies for up to 12 weeks per employee in any year. Eligible employers must have a written policy that allows all qualifying full-time employees at least two weeks of paid FMLA leave per year and allows part-time employees a commensurate amount of annual paid leave on a pro rata basis. A “qualifying employee” is any employee who has been employed for one year or more and who, for the preceding year, had compensation not in excess of 60 percent of the compensation threshold for highly compensated employees under qualified plan rules (i.e., no more than $72,000 in 2017 (60 percent of $120,000)).

Paid leave provided in the form of vacation, personal, or other medical or sick leave would not qualify for the tax credit. Further, any leave either paid for by a state or local government, or required by state or local law, does not qualify for the tax credit.

For a copy of Form 8994 and Instructions please click on the following links:

Instructions: https://www.irs.gov/pub/irs-pdf/i8994.pdf

Form 8994: https://www.irs.gov/pub/irs-pdf/f8994.pdf

The Internal Revenue Service (IRS) had previously released Notice 2018-71 which provides guidance to employers wishing to claim the Employer Credit for Paid Family and Medical Leave in 2018 and 2019. Please see link below:
https://www.irs.gov/pub/irs-drop/n-18-71.pdf

Action Required: Please direct additional inquiries to your qualified tax professional.

*Produced in partnership with Littler Mendelson P.C.

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