Understanding Employer Tax Credit for Family and Medical Leave
November 09, 2023
The Consolidated Appropriations Act 2021 extends employer credit for paid family and medical leave through December 31, 2025. This tax credit encourages employers to provide their employees with paid family and medical leave. Under this provision, employers can claim a tax credit equal to a percentage of wages paid to qualifying employees while they are on family and medical leave.
Is My Company Eligible for this Credit?
Employers who provide paid family and medical leave to their employees may claim a tax credit equal to a percentage of wages they pay qualifying employees while on family and medical leave. The credit is effective for wages paid in tax years beginning January 1, 2018, through December 31, 2025.
What are the Requirements?
To be eligible for the credit, employers must have a written policy that meets specific requirements, including:
- At least two weeks of paid family and medical leave annually to all qualifying employees working full time, with prorated benefits for part-time employees and
- The paid leave must equal or exceed 50 percent of the wages typically paid to the employee.
In this context, qualifying employees fall under the Fair Labor Standards Act, have worked for the employer for at least one year, and earned compensation below a certain threshold in the preceding year.
Family and Medical Leave credit includes:
- Birth and care of an employee's child
- Placement of a child with the employee for adoption or foster care
- To care for 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 exigency 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.
- To care for a service member who is the employee's spouse, child, parent, or next of kin.
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per tax year. The credit percentage ranges from a minimum of 12.5% of wages paid to qualifying employees while on leave to a maximum of 25%. This percentage increases by 0.25% for each percentage point that the amount paid to the employee exceeds 50% of their wages, up to the maximum limit.
It's important to note that the credit is subject to certain limits and will reduce the employer's deduction for wages or salaries paid accordingly. Wages considered in determining any other general business credit may not be used in determining this credit.
Contact our team today to help determine if you are eligible for this credit.