By Nicole Preston, CPA, MST – Tax Manager, Doeren Mayhew

The Tax Cuts and Jobs Act created a federal tax credit for employers who provide paid leave under the Family and Medical Leave Act (FMLA) for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2020.

The credit is equal to 12.5 percent of wages paid to qualifying employees during any period in which such employees are on leave under FMLA, provided the rate of payment is 50 percent of wages normally paid to the employee. The applicable percentage is increased by 0.25 percentage points (but not to exceed 25 percent) for each percentage point by which the rate of payment exceeds 50 percent. Wages incurred but unpaid do not qualify for the credit.

FMLA Basics

FMLA requires an employer with 50 or more employees (within a 75-mile radius) to provide eligible employees 12 weeks of unpaid, job-protected leave per year under one of the following circumstances:

  • The birth and care of a newborn child of the employee
  • Placement with the employee of a child for adoption or foster care
  • Employee caring for a spouse, child or parent with a serious health condition
  • An employee’s serious health condition making the employee unable to work
  • Any “qualifying exigency” arising out of the fact that the employee’s spouse, child or parent is a military member on covered active duty or called to covered active duty status
  • Caring for a covered service member with a serious injury or illness

Wages paid for vacation leave, personal leave, medical or sick leave do not qualify as FMLA leave.

Can I Claim the Employer Credit?

In order for your business to claim the employer credit there are circumstances revolving the employer and the specific employee situation that needs to be considered, as outlined below:

Eligible Employer:  For purposes of the FMLA credit an eligible employer is an employer that has a written policy in place meeting the following requirements:

  • The policy provides:
    • A qualifying employee who is not a part-time employee no less than two weeks of annual paid FMLA leave
    • A qualifying employee who is a part-time employee annual paid FMLA leave that is not less than an amount which bears the same ratio to the amount of annual paid FML that is provided to a qualified employee who is not part-time as:
      • The number of hours the employee is expected to work during any week, over
      • The number of hours an equivalent qualifying employee who is not part-time is expected to work during the week.
    • The policy requires the rate of payment is not less than 50 percent of the wages normally paid to the employee for services performed for the employer.

Qualifying Employee:  For purposes of the FMLA credit a qualifying employee is an employee who meets the following requirements:

  • The employee has been employed with the employer for at least one year and during that period, the employee must have worked at least 1,250 hours.
  • The employee received compensation in the preceding year not in excess of 60 percent of the amount applicable for a highly compensated employee under the nondiscrimination rules for qualified retirement plans.
    • The 2018 applicable amount for a highly compensated employee is $120,000. Thus, for purposes of the FMLA credit, an employee must not have received more than $72,000 (60 percent x $120,000) in 2018.

It’s not uncommon that you have one to two, if not more, employees out each year due to the FMLA. Make sure your taking advantage to recoup some costs related to them being out.  Check with Doeren Mayhew’s tax advisors to determine if you have a situation available for the credit.

 

Want to reach the author? Email Nicole Preston or contact her at 248.244.3252.