Employers providing paid FMLA are entitled to tax credits

Along with employer responsibilities laid out in the Federal Medical Leave Act (FMLA), there is a related benefit, set forth in the 2017 Tax Cuts and Jobs Act. Employers who provided employees with benefits under FMLA may be entitled to a significant business credit. Moreover, this tax credit may be applied retroactively.

With the suddenness of the passage of The 2017 Tax Cuts and Jobs Act, many employers may not yet be aware of this credit. It took the IRS most of 2018 to establish precise rules for it.

Employers who set up and managed paid family leave programs may be eligible to claim this credit retroactive to the beginning of the employer’s taxable year, for qualifying leave already provided. The credit for businesses and for-profit organizations is currently in effect for tax years 2018 and 2019, unless Congress votes to extend it.

Employers have long asserted that FMLA was one-sided, offering much for employees and little for businesses and for-profit organizations. The business credit contained in the 2017 Tax Cuts and Jobs Act addresses that imbalance.

Treasury Secretary Steven Mnuchin last fall touted the enhancements made to FMLA: “Delivering relief to hardworking taxpayers and their families was a central goal of the Tax Cuts and Jobs Act. We expanded and strengthened paid family and medical leave, which are investments in the future of our workers, families and country.”

The IRS provides Form 8994, now ready for use in guiding employers in applying for employer credit for paid family and medical leave.

Employers must meet a number of conditions to qualify for the credit.

1. One important condition is that employers may only obtain the credit for employees who earned less than $72,000 in the year prior to taking family or medical leave. There is no credit for employees earning more than $72,000.
2. Employers may claim or not claim the credit any time within 3 years from the due date of your return on either the original return or an amended one.
3. In order to be eligible for the credit, employers must have provided a minimum of two weeks of paid time off that would otherwise be unpaid under the FMLA. It is worth noting that the tax credit applies to all employers, not just those covered by the FMLA. Employers do not have to provide paid time off for every aspect of FMLA leave in order to claim the credit. For example: employers may opt to provide paid time off for a serious medical condition, but not provide it for parental leave.
4. In addition, employers are obliged to compensate workers at least 50 percent of their regular earnings.
5. Wages paid through a short term disability program set up by the employer for family or medical leave are factored into determining the credit.
6. Paid leave granted by state or local government or required by state or local laws do not affect the credit. This is relevant in light of the passage of Connecticut’s newly-signed paid family and medical leave act. Employers may continue to earn credit for paid family and medical leave despite the new law.

The Family and Medical Leave Act of 1993 (FMLA) requires employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons. Rights named under the law include 12 weeks of unpaid leave for child birth, adoption, to care for a close relative in poor health, or for an employee to obtain care for their own health problems.

The Tax Cuts and Jobs Act of 2017 has been described as the most significant tax overhaul in 30 years. From its onset it has been described as a work in progress, requiring extensive input and guidance from the IRS. The tax credit for employers offering family and medical leave benefits to employees is just one element of the Tax Cuts and Jobs Act now coming into focus.

Mitchell & Sheehan, P.C. relied on this article in Insurance Journal for information about the credit.

Mitchell & Sheehan, P.C. is a law firm focusing on employment law. It does not provide counsel on tax matters.