Family Medical Leave Act Tax Credit
Supporting employees in their time of need can be a win-win.
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FMLA Tax Credit Background
The Family and Medical Leave Act Tax Credit was launched as part of the December 2017 Tax Cuts and Jobs Act. Beginning in 2018, employers can offset a percentage of the wages disbursed for paid FMLA leaves. After one year of employment, employees earning up to the designated earnings threshold can generate a tax credit for their employer.
Employee Eligibility & Timeline
For employees to qualify for the 2018 credit, their income must have been no more than $72,000 in 2017. Both Full and Part-time employees can qualify. At this time, the credit is set to run through the end of 2019.
In order for employers to qualify for the tax credit, the business must have a documented FMLA paid leave policy. That policy must provide full-time workers with at least two weeks of paid leave each year. Part-time employees should receive pro-rated compensation according to the number of hours worked. The wages paid for this leave must not be less than 50% of normal wages.
Employers that meet the requirements are entitled to claim 12.5% of FMLA wages paid as a general business tax credit. For every percentage point that the paid leave compensation surpasses the 50% of normal wages threshold, employers can increase their benefit by 0.25%. As with most general business tax credits, unused portions of the credit will carry forward.
The announcement of this new federal tax credit has prompted companies to re-examine their paid-leave policies. TCC brings a consultative approach to assisting clients in identifying the cost/benefit of generating this credit. That calculation needs to account for each of the stakeholders. As the number of interested parties increases, the complexities of a seemingly straightforward benefit can surface. Our approach takes into account the numerous departments involved: tax, payroll, HR, benefits, IT and Finance.
TCC’s technology has handled vast amounts of payroll, HR and benefits data. It’s been an integral part of our success with WOTC and (in its time) ACA compliance. The efficiencies we’ve developed allow us to provide a complimentary evaluation of the potential cost/benefit of the FMLA credit. Those efficiencies also extend to our intake of data. Our technology was built for agility, inviting clients to provide data in a format that’s most convenient. Wherever possible, we will identify an alternative that avoids burdening our client.