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IRS guidance on tax credit for paid family and medical leave
\nOn April 9, 2018, the IRS issued a set of\xa0frequently asked questions\xa0(FAQs) that address the employer credit under Internal Revenue Code Sec. 45S for paid family and medical leave (\xa05). The credit, which was enacted under the\xa0Tax Cuts and Jobs Act of 2017,\xa0is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017 (\xa010). It is not available for wages paid in taxable years beginning after December 31, 2019.
\nClaiming the credit.\xa0The credit is a general business credit employers may claim, based on wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions. An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.
\nTo claim the credit, employers must have a written policy in place that meets certain requirements, including:
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\nprovision of at least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part time); and
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\nthe paid leave is not less than 50 percent of the wages normally paid to the employee.
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\nCalculating the credit.\xa0The FAQs indicate that the credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The minimum percentage is 12.5 percent and is increased by 0.25 percent for each percentage point by which the amount paid to a qualifying employee exceeds 50 percent of the employee\u2019s wages, with a maximum of 25 percent. In certain cases, an additional limit may apply.
\nQualifying employee.\xa0A qualifying employee is any employee under the\xa0Fair Labor Standards Act\xa0(FLSA) who has been employed by the employer for one year or more and who, for the preceding year, had compensation of not more than a certain amount. For an employer claiming a credit for wages paid to an employee in 2018, the employee must not have earned more than $72,000 in 2017.
\nReasons for leave.\xa0For purposes of the credit,\xa0“family and medical leave”\xa0is leave for one or more of the following reasons:
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\nbirth of an employee\u2019s child and to care for the child;
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\nplacement of a child with the employee for adoption or foster care;
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\nto care for the employee\u2019s spouse, child, or parent who has a serious health condition;
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\na serious health condition that makes the employee unable to perform the functions of his or her position;
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\nany qualifying exigency due to an employee\u2019s spouse, child,