Tax News: IRS releases FAQ on paid leave tax credit - Abel HR

W2 Issues/Concerns

  • This field is for validation purposes and should be left unchanged.

Blog

Check out our weekly blog posts and see the latest news and discussions happening in the HR world of business.

Tax News: IRS releases FAQ on paid leave tax credit

When the Tax Cuts and Jobs Act (TCJA) was first announced, many components of it were poorly understood, including the paid-leave tax credit that was ushered in as part of the bill. Now, the Internal Revenue Service (IRS) has stepped up to the plate to answer questions and debunk myths.

The biggest takeaway? Some firms feeling short-changed.

Here’s how the measure was initially explained: the tax credit was designed to help employers that provide leave in accordance with the federal Family and Medical Leave Act (FMLA). To be eligible for the credit, employees must be paid at least 50 percent of their normal wages while out on leave and cannot make more than $72,000. The tax credit applies to any wages paid between January 1 of this year and December 31, 2019, unless Congress decides to extend it.

Now, in terms of how employers benefit, they were eligible for a tax credit of between 12.5 percent and 25 percent of the amount of wages paid out, with the scale sliding based on what percentage of their normal wages the employee was eligible to receive. However, it should be noted that companies are not eligible if the leave is mandated by their state or local law.

The FAQ from the IRS essentially irons out what constitutes paid family and medical leave under the terms of the tax credit program. Per the federal agency, this leave applies to employees who take leave for the following reasons:

  • Birth of an employee’s child and to care for the child.
  • Placement of a child with the employee for adoption or foster care.
  • To care for the employee’s spouse, child, or parent who has a serious health condition.
  • A serious health condition that makes the employee unable to perform the functions of his or her position.
  • Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin.

Further, the IRS gave a bit more direction as to how the credit should be calculated, but if we’re being honest, it’s about as clear as mud! Specifically, they state that “The minimum percentage [for tax credit] is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%.  In certain cases, an additional limit may apply.”

Lucky for us, HR Morning tracked down the fine folks over at the law firm Winston & Strawn, and they did the heavy lifting! Their example profiles an employee who earned $50,000, which included $5,000 of paid FMLA leave. They noted that in this case, the employer received a $1,250 credit for the leave it provided, therefore, it could only deduct $48,750 of the employee’s wage expense ($50,000-$1,250).

Still have questions? Yep, even the IRS predicted that one! They even note in their FAQ that future updates will focus on “when the written policy must be in place, how paid “family and medical leave” relates to an employer’s other paid leave, how to determine whether an employee has been employed for “one year or more,” the impact of State and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.”

Phew – so that’s a ton of information, and not necessarily a lot of concrete answers. Lucky for you, our experts stay on top of these updates and will be sure to keep you posted on all tax credits for which your company may be eligible. We are available at (800) 400-1968 or info@abelhr.com to answer any questions and make sure you are getting the tax credits you are qualified to receive.

Featured BLOGS

  • How To Reconnect Remote Employees

    What was once meant to be a 14-day break to “flatten the curve” quickly turned into a nearly one-year departure from life as we know it. While it seems daunting to go back, a theme of a recent survey suggested that what workers miss the most (besides the free office supplies!) was the connection with others. In the study by Office Depot, a whopping 56 percent of workers reported that they were excited to come back. Upon their return to work, 55 percent reported that they were excited to see their coworkers, 42 percent wanted their own personal space, 37

  • Why Having Time-Clock Software Is a Must

    When we look at old movies where employees are knocking off work, we often see them punch a time clock – an antiquated piece of technology that many have assumed had gone the way of the dodo. However, reports suggest some 78 million workers still punch in and out of work each day, representing just shy of 60 percent of the nation’s hourly workers. But surely there’s a better way? Enter time management software, which does away with the actual punch clock, the “sign in/sign out” paper, or takes the place of that complicated shift spreadsheet you’ve struggled with all

Archives