Navigating Tax Reform: Employer Credit for Paid Family and Medical Leave

26 Apr 2018

For months on end, news reports and politicians have repeated ad infinitum the major provisions of the Tax Cuts and Jobs Act of 2017 (the “Act”), such as the reductions in corporate and individual income tax rates and the deductions available to pass through entities. But many provisions in the law that have received much less publicity are nonetheless extremely important to the millions of people and businesses such provisions affect. This series of blog posts will explore some of these obscure provisions, and the related implications for businesses and individuals.

Paid Family and Medical Leave Credit

Under the Act, employers that allow all qualifying full-time employees at least two weeks of annual paid family and medical leave and allow part-time employees a commensurate amount of leave on a pro rata basis (“Eligible Employers”) are eligible for a tax credit of up to 25% of such wages. The credit is equal to 12.5% of wages paid to Eligible Employees during any period in which such employees are on family and medical leave if the payment rate under the program is equal to 50% of the wages normally paid to the employee. The credit increases by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50% of normal wages. Wages paid during the leave period at a rate in excess of the employee’s normal wages are disregarded, such that the credit can never exceed 25% of the wages paid.

This provision applies to tax years beginning in the 2018 and 2019 calendar years. Due to the short window, employers wishing to take advantage of this credit should act quickly.

Before the change became effective, and after the change expires, employers may deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business (including wages paid), but several exceptions apply, reducing the incentive to provide family and medical leave.

Analyzing tax implications has been made much more complicated by the Act, if you have questions about this topic or anything else related to the Act, please don’t hesitate to contact me or your Ireland Stapleton attorney.


About the Author

Eric R. Benson is a business law attorney with Ireland Stapleton Pryor & Pascoe. His practice focuses on advising businesses on legal matters throughout the life cycle of the business. He also advises nonprofit organizations regarding formation, qualification for tax exempt status, mergers and acquisitions, and general matters related to their operations. You can reach him at 303-628-3605 or ebenson@irelandstapleton.com.

What is written here is intended as general information, and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.