In the News: How to Determine if Your Business is Eligible for Paid Family Leave Tax Credit

If we’re being totally honest, the recently enacted Tax Cuts and Jobs Act was ushered through at such speed that few people can honestly say that they have a good grasp on the new rules and regulations. Luckily for you, you have us, and we’ve found folks who can not only make sense of the new rules, they can teach you how to leverage some changes to earn your company back some money.

Today we want to talk specifically about the new federal tax credit for employer-provided paid family and medical leave. Specifically, Under new Section 45S of the Internal Revenue Code, employers that voluntarily offer qualifying employees up to 12 weeks of paid family and medical leave annually under a written policy may claim a tax credit for a portion of the wages paid during leave. Therefore, your company may be eligible to enjoy a dollar-for-dollar reduction in its income tax liability for the year.

What constitutes a qualifying employee? According to the requirements outlined in Section 45S, a qualifying employee is someone who has been employed by your company for at least one year and is paid no more than 60 percent of the “highly compensated employee” dollar amount on an annual basis. While this benefit is open to companies of all sizes, it should be noted that the credit does not apply if paid leave is mandated by your state or relevant local laws.

So, if you think you might qualify for this paid family and medical leave tax credit, follow the four steps below:

1)      Take stock of your company’s existing policies for those voluntary paid leave benefits that are not required by law. Your company may qualify if you provide paid time off for any of the following reasons:

  • Employee’s serious health condition, including pregnancy.
  • Parental leave or bonding leave.
  • Care of a family member with a serious health condition.
  • Care of an injured service member.
  • Because of a qualifying exigency that arises when a family member is deployed abroad on active military duty.

2)      Calculate your company’s 2017 income replacement dollar amount that was used to pay out under one or all of the policies listed in Step 1.

3)      Based on the figure that you obtained in the previous step, you can estimate your company’s potential annual tax savings using the Paid Family Leave Tax Credit Calculator.

4)      If the calculator estimates a positive amount, then consult with your legal counsel to ensure your policy fully complies with Section 455 and then move forward with pursuing the tax credit.

For those companies that do not offer such benefits, the tax credits may make it even more attractive. Not only can you provide your employees with a very robust paid leave policy – which is fantastic for boosting morale and promoting loyalty – but you can also reduce your company’s year-end tax liability.

Abel HR’s experts can make sense of it all and help you understand how it applies to your business.  The HR solutions offered will help you strategically plan to reduce your financial risk.  Ask us how at 800-400-1968 or email