The Tax Cuts and Jobs Act allows a general business credit to certain employers for paid family and medical leave. This credit can be used to reduce a taxpayer’s alternative minimum tax (AMT). For tax years 2018 and 2019, an eligible employer with an allowed written policy regarding family and medical leave can deduct between 12.5% and 25% of the wages paid to employees that took eligible time.
So what are the determining factors that separate family and medical leave compared to normal vacation and sick time? The employee needs to fit into one of five purposes:
- Because of the birth of a son or daughter of the employee and to care for that son or daughter
- Because of the placement of a son or daughter with the employee for adoption or foster care
- To care for the spouse, or a son, daughter, or parent of the employee, if that person has a serious health condition
- Because of a serious health condition that makes the employee unable to perform the functions of the position of that employee
- Because of any qualifying hardship brought on by the fact that the spouse, or a son, daughter, or parent of the employee is on covered active duty in the Armed Forces
If an employer provides paid leave other than for one or more of the purposes above, that isn’t considered to be family and medical leave. Also, the time that may be taken by an employee for each tax year cannot exceed 12 weeks.
The policy requires that the hourly rate of payment under the program is to not be less than 50% of the wages normally paid to the employee and that employees have been employed by the employer for one year or more.
A taxpayer can’t take both a credit and a deduction for amounts for which the paid family and medical leave credit is claimed. Thus, a taxpayer can’t deduct that portion of the wages or salaries paid or incurred for the tax year which is equal to the sum of the credits determined for the tax year under the new tax code.
To receive additional assistance with the credit and how it is calculated, please contact Abacus CPAs at www.abacuscpas.com or at417-823-7171. Better Guidance. Smarter Decisions.