By Carolyn Dolci, CPA and Jeanne-Marie Waldman, CPA

The 2017 Tax Cuts and Jobs Act created a business tax credit through Section 45S of the Internal Revenue Code for employers of all sizes that voluntarily offer paid family and medical leave to their employees.  The credit is based on a percentage of the wages paid to a qualifying employee taking leave for up to 12 weeks per year, provided certain statutory requirements are met.  The credit is available for tax years beginning after December 31, 2017, and before January 1, 2020.

Family and Medical Leave and Qualifying Employers

To qualify, employers must have a written policy granting at least two weeks annual paid family and medical leave to employees at 50% or more of the employee’s normal salary.  The policy must grant leave to all qualifying employees who work full-time and be pro-rated for part-time employees.  Vacation leave, personal leave or other medical or sick leave does not meet the criteria, and the credit does not apply if state or local laws mandate paid leave.  The family and medical leave must include at least one of the circumstances described in certain subparagraphs of the 1993 Family and Medical Leave Act: the birth and care of the employee’s child, a child adoption, care for the employee’s spouse, child or parent with a serious health condition, the employee’s serious health condition, a qualified exigency resulting from a family member being on active duty in the armed forces or care for a family member in the armed services.  

Qualifying Employees

A qualifying employee is someone who has worked for the employer for at least one year under the terms of the Fair Labor Standards Act, and whose compensation is below a statutory-based income threshold for the prior year.  For employers claiming the credit in 2018, the 2017 compensation limit is $72,000.00.  

Credit and Tax Reporting Concerns

The credit generated will range between 12.5% (50% of regular wages) to 25% (100% of regular wages) of the employee’s wages, depending upon the percentage of the employee’s regular salary paid during his or her leave.  

A business taxpayer may choose annually between either claiming the credit or deducting for the related salary expense.  Wages already applied toward any other general business credit may not be counted in determining this credit.  The IRS has promised additional guidance on the credit, specifically when the written policy must be in place, how leave under this credit relates to an employer’s other paid leave, the impact of state and local laws and how to determine an employee’s length of service.  

Employers should consider reviewing their current policies to determine if they qualify for the credit or need to make amendments to their policies.

Carolyn Dolci, CPA is a Tax Partner responsible for serving privately and closely held businesses and high net worth family groups.  She provides tax planning, compliance and advisory services for clients in many industries, including law firms, manufacturing, distribution, technology and service businesses.  As part of EisnerAmper’s National Law Firm Services Practice, Carolyn co-founded the firms Quarterly Roundtable for Senior Financial Executives of Law Firms.  Carolyn has experience with corporate income tax, including consolidated filings, partnerships, multistate and local taxes, trusts and individuals.  She has presented at law industry conferences on various tax matters, and is also co-chair of the Women of EisnerAmper.  Carolyn may be reached at [email protected]. 

Jeanne-Marie Waldman, CPA is a Senior Tax Manager with nearly 15 years of experience.  Her expertise focuses on partnership and corporate taxation, and also includes state and local income tax compliance and consulting.  She has significant experience serving clients in the professional services, retail and distribution industries.  Jeanne began her accounting career in auditing and accounting at a firm in New Jersey, where she provided litigation support services.  She subsequently became part of the Commercial Services Tax Group at Rothstein Kass, specializing in tax compliance for partnerships, corporations and high net worth individuals. Jeanne also handled related state and local tax matters.  She has substantial experience in tax and legal research, and significant involvement in managing federal and state tax examinations.  Jeanne may be reached at [email protected].