An updated guidance on a tax credit for employers who provide paid family and medical leave to their employees has been issued by the IRS (Notice 2018-71). The tax credit applies regardless of whether an employer has fewer than 50 employees and therefore is not covered by the federal Family and Medical Leave Act (FMLA) or the California Family Rights Act.
To be eligible to claim the credit, an employer must have a written policy that covers all employees who have been employed for a year or more and were paid no more than $72,000 in the preceding year. Additionally, the employer 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. The leave must provide for payment of at least 50 percent of the qualifying employee’s wages while the employee is on leave.
If an employer has qualifying employees who are not covered by the FMLA, the written policy must include language providing “non-interference” protections (as defined in the updated guidance).
According to the guidance, any leave paid by a State or local government or required by State or local law is not taken into account in determining the amount of paid family and medical leave provided by the employer, the rate of payment under the employer’s written policy, or the determination of the credit, according to the guidance.
Because California provides six weeks of paid family leave wage replacement through the Employment Development Department, employers should seek guidance from their tax advisor as to the applicability of this credit to their business, based on any additional paid leave they may provide to their employees.