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Tax Cuts and Jobs Act: Employer Credit for Paid Family and Medical Leave

The Tax Cuts and Jobs Act impacts more than just the tax brackets: eligible employers can claim a general business credit equal to a percentage of wages paid to qualifying employees on family and medical leave.

To receive the credit, employers must provide at least two weeks of leave and compensate their employees at a minimum of 50% of their regular earnings. Employers will receive a 12.5% credit, increased by 0.25% for each percentage point by which the employer's payment exceeds 50% of the employee's regular wages (but not to exceed a 25% credit). For example, if an employer pays $2,000 of wages during four weeks of Family and Medical Leave Act ("FMLA") leave (50% of wages normally paid to the employee), the employer can claim a paid FMLA credit of 12.5% of $2,000, or $250. The credit does not apply to the concurrent use of paid vacation, personal, or sick leave while on FMLA leave.

To take advantage, employers must have a separate written policy in place. Absent further guidance from the IRS, it is unlikely employers' current paid time off ("PTO") or paid sick leave policies will allow employers to qualify for the credit. The separate policy must provide at least two weeks of paid family and medical leave, not to exceed twelve weeks, to all qualifying full-time employees, and at least a ratio equivalent to such paid leave provided to full-time employees, to all qualifying part-time employees. A qualifying employee is any employee who has been employed by the employer for at least one year and who earned less than $72,000 per year in 2017.

An employer who is not covered under the FMLA (e.g., private-sector employers with fewer than fifty (50) employees) may still take advantage of the credit, with the addition of a provision explaining the employer will not interfere with or discriminate against any individual for exercising his or her right under the written policy.

The credit is only temporary: it will not apply to wages paid in tax years beginning after December 31, 2019, so employers will have to act fast to take advantage.

Morgan L. Kreiser

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500