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Family Leave Tax Credit

A new federal tax credit for employers was created by the Tax Cuts and Jobs Act of 2017. Employers that offer employees up to 12 weeks of paid family and medical leave may claim a tax credit for a portion of the wages paid during their leave. The credit is available for wages paid in 2018 and 2019, and only applies to workers earning less than $72,000 a year.

Employers are eligible if they have a written paid family/medical leave policy that is separate from the rest of an employee’s paid time off package. Employers that offer PTO benefits that can be claimed for any reason –– vacation, personal days, sick leave –– do not qualify.

To receive the credit, employers have to provide at least two weeks of paid leave and compensate their workers at a minimum of 50 percent of their regular earnings. The tax credit will range from 12.5 percent to 25 percent of the cost of each hour of paid leave, depending on how much of a worker’s regular earnings the benefit replaces. By claiming the leave credit, an employer must also reduce the amount of wages they deduct by the same amount. For example, if an employee earns $50,000 a year and receives a $1,250 credit, the employer can only deduct $48,750 in wages.

Employers located in jurisdictions that require paid sick leave are not eligible for the credit.

The federal government has not offered much guidance to companies trying to figure out whether the credit is worth it.  The credit is set to expire after 2019 unless congress votes to extend it.

Source: Benefits Pro, by Jack Craver

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