Benefit to Employers Who Offer Paid Family Leave
Are you an employer who offers paid family and/or medical leave? If so, you may qualify for a tax credit for tax years 2018 and 2019. Depending on how much you pay an employee while on family or medical leave, you may be able to claim between a 12.5% – 25% credit for the wages you paid to the employee during the leave. See 26 USC §45S. The IRS recently issued Notice 2018-71, which provides guidance for employers who want to claim the credit.
Many employers I work with have a PTO policy that groups various types of leave into one big leave bank. The Notice clarifies whether an employer can claim the credit for an employee taking leave for an FMLA-qualifying purpose under a PTO policy. You can if: (1) the employee’s leave is for a FMLA-qualifying purpose, and (2) the leave policy specifically provides paid leave for FMLA-qualifying purposes.
This means that if you group all types of leave in one big PTO bank (e.g. FMLA, minor illness, vacation , specified personal reasons, etc.), your PTO policy does not meet the requirements of § 45S. You would need to modify your PTO policy to designate a certain amount of paid leave to be used for FMLA purposes only.
In addition, any leave paid by or required by state or local law is not taken into account when determining the amount of employer-provided paid family and medical leave.
If you have a policy in place (or are thinking about implementing a paid leave policy), and are interested in claiming this credit, you should carefully review the Notice and consult with your tax advisor to determine whether you meet the various requirements. If you have questions about this or other employment matters, please feel free to contact me at firstname.lastname@example.org or 503-412-3116.