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IRS Guidance on the Employer Credit for Paid Family and Medical Leave

On September 24, 2018, the IRS issued guidance on the employer credit for paid family and medical leave under section 45S of the Internal Revenue Code (Code).

Section 45S established a business credit for employers that provide paid family and medical leave (the credit). The credit is equal to a percentage of wages paid to qualifying employees while they are on family and medical leave. The purposes for which an employee may take family and medical leave under section 45S are the same purposes for which an employee may take family and medical leave under title I of the Family and Medical Leave Act of 1993, as amended (FMLA), Pub. L. 103–3; 29 U.S.C. sec. 2601.

Following is a summary of the requirements to receive the credit under section 45S:

  • To be eligible to claim the credit, an employer must have a written policy that satisfies certain requirements:
    • First, the policy must cover all qualifying employees; that is, all employees who have been employed for a year or more and were paid not more than a specified amount during the preceding year. (For example, in determining whether an employee is a qualifying employee in 2018, the employee generally must not have had compensation from the employer of more than $72,000 in 2017.)
    • Second, the policy must provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee.
    • Third, the policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave.
    • Fourth, if an employer employs qualifying employees who are not covered by title I of the FMLA, the employer’s written policy must include language providing “non-interference” protections. That is, the written policy must incorporate the substantive rules that must be met in order for an employer to be eligible for the credit.
  • Any leave paid by a State or local government or required by State or local law is not taken into account for any purpose in determining the amount of paid family and medical leave provided by the employer.
  • For purposes of the credit, an “employer” is any person for whom an individual performs services as an employee under the usual common law rules applicable in determining the employer-employee relationship.

The IRS guidance provides additional detail on the credit, in question and answer form. It covers the following topics:

  1. Eligible Employer
  2. Family and Medical Leave
  3. Minimum Paid Leave Requirements
  4. Calculating and Claiming the Credit
  5. Effective Date

For more information, see Notice 2018-71 or contact your Boardman Clark attorney.

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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