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Business credit for FMLA leave: The basics

Employers are wise to take note of recent changes to tax implications of paid family and medical leave. The Internal Revenue Service (IRS) recently published a notice stating changes to the tax code have led to the creation of business credit for the provision of this type of leave.

How does an employer know if they qualify for the credit? For the purposes of this portion of the code, the IRS has defined family and medical leave to be the same as the definition present under title I of the Family and Medical Leave Act of 1993 (FMLA).

The agency also states the employer must have a written policy that meets the following criteria:

  • Covers all qualifying employees. The policy must cover those who have worked for a year or more. The IRS states this generally includes employees who received less than $72,000 in 2017.
  • Time available. The policy must also provide at least two weeks of leave for full-time employees and a proportionate amount for part-time employees.
  • Payment on leave. The policy must also provide for the employees to receive at least 50 percent of wages while on leave.
  • Non-interference protections. The employer must also provide “non-interference” protections for employees that are not qualified to take FMLA leave. The agency provides an example of a provision that could meet this requirement: “[Employer] will not interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under this policy. [Employer] will not discharge, or in any other manner discriminate against, any individual for opposing any practice prohibited by this policy.”

If these criteria are met, the employer can get the tax credit. The tax credit equates to a percentage of wages paid when workers are on leave.

This is just one of many changes for businesses to take into consideration when navigating tax obligations in 2018. As such, business leaders are wise to reach out to the tax professionals at Goldburd McCone LLP to review their tax obligations

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