New paid leave tax credit – IRS makes it official

If your company provides paid family and medical leave to your employees, here’s good news: You’re officially now eligible for a new tax credit.

That’s the word from the Treasury Department in IRS Notice 2018-71, which offers final rules on implementation, as well as 34 questions and answers to help. And it all stems from the 2017 Tax Cuts and Jobs Act.

So just how much can your company capitalize? Here’s a rundown of everything you need to know.

What kind of leave counts

According to IRS, paid family and medical leave must be specifically provided to employees for the following reasons:

• the birth of an employee’s child and the care of that child
• the placement of a child with the employee for adoption or foster care
• the care of 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 absence 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, and
• the care of a service member who is the employee’s spouse, child, parent or next of kin.

What doesn’t count

Your company will have to have a specific paid family and medical leave program to take advantage  — general paid sick leave, paid vacation or personal leave doesn’t count.

In a state or city that already mandates paid leave? You’re out of luck then, too. Paid family and medical leave that companies must provide due to state or local law is also ineligible for the tax credit.

How much

You’ll receive a credit as much as 25% of an employee’s wages if you paid that employee more than 50% of their wages while they were out on family or medical leave.

But be aware: You won’t be able to claim it for everyone on the payroll. It only applies to folks who earned $72,000 or less in the previous year.

The good news? The credit applies to Tax Years 2018 and 2019. And it can be applied retroactively for the tax year your company established or updated your paid leave policy.