Employer Credit for Paid Family and Medical Leave—IRC 45S

As part of the 2017 tax reform reconciliation act, also known as the Tax Cuts and Jobs Act (TCJA), a tax credit opportunity is now available to businesses that provide paid family or medical leave to employees in 2018 or 2019.

About the Credit

The employer-paid family and medical leave credit (IRC Section 45S) is nonrefundable and may be used to offset federal income tax. However, determining eligibility and calculating the credit can be complicated.

Using our industry-leading tool, MaxCredits®, we’ll efficiently determine your company’s eligibility, calculate the credit amount, and provide a detailed report you can use for the federal income tax return. Here’s how it works.

MaxCredits: Efficiently Calculate the Credit

To start, we’ll work with you to determine if your business qualifies. We’ll then do the following:

  • Collect and review the necessary documentation and payroll to determine each employee’s eligibility and identify limitations on wages used for other general business credits
  • Prepare a final report with detail on claiming the credit on the appropriate schedule

In addition to calculating the family and medical leave credit, MaxCredits has a web-based platform that can determine whether your business qualifies for other federal hiring credits, including:

  • Work Opportunity Tax Credit
  • Disaster credits, such as Hurricane Employee Retention Credit and the California Wildfire Employee Retention Credit
  • State-level hiring credits

Below, we break the information into more detail. Our professionals will efficiently determine the following, so you can focus on running your business.

Eligibility

To qualify for the credit, employers and employees must meet the below criteria.  

Qualified Employers

 Policies of qualified employers must be in place and provide the following:

  • At least two weeks paid family and medical leave—not including state or federal paid or mandated Family Medical Leave Act (FMLA) leave
  • Paid leave of at least 50% of an employee’s normal wages or salary
    • Paid leave doesn’t include vacation, personal, or sick time

Policies must also include leave that covers one or more of the following:

  • Birth of a child
  • Adoption or fostering of a child
  • Care for a spouse or family member with a serious health condition
  • Employee’s own serious health condition
  • Spouses and family member of certain active military members

Qualified Employees

There are three criteria for eligible employees:

  • Employed at least one year at time of leave
  • Receive annual compensation less than $72,001
  • Take leave during 2018 or 2019

Credit Computation

Calculation is based on the percent of wages paid during FMLA and can’t be calculated with the same wages used to calculate another general business credit.

Credit Computation

Examples

Here are two examples of how the credit can apply to employees with different wages and paid family and medical leave benefits.

Employee One

Employee 1

Employee 2

Employee 2

Complimentary Benefits Estimate

Discover how you can turn the Employer Paid Family and Medical Leave Credit into tax savings by filling out our complimentary benefits estimate request form. A Moss Adams professional will contact you with a preliminary estimate of the potential tax benefit to your organization.

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