On December 22, 2017, President Trump signed the tax reform bill into law. The bill is officially called “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.” Among its many provisions, the law incentivizes employers to provide paid FMLA leave.
Passed in 1993, the FMLA requires covered employers to provide eligible employees with up to 12-work weeks of unpaid leave during any 12-month period. Covered employers are those with 50 or more full time employees within a 75-mile radius. While employers must continue to provide benefits during leave, the law does not require employers to pay employees for their time away from work, unless the employee has enough accrued paid time off balances.
The new tax bill incentivizes employers to pay employees for their FMLA leave. Employers offering full time employees at least two weeks of paid FMLA leave will receive a general business credit equivalent to 12.5 percent of the amount of wages they pay an employee as long as the employee is being paid at least 50 percent of their normal wages while out on leave. For each additional percentage point paid to the employee above 50 percent, .25 percent is added to the tax credit (e.g. 51% would result in a 12.75% tax credit).
To qualify, employees must have been employed for at least one year and earn less than 60% of the compensation threshold for highly-compensated employees, which is $120,000 in 2018. The maximum amount of leave for which credit can be received is 12 weeks. Employers may not designate paid vacation, personal or other sick leave already provided to the employee as FMLA leave in order to receive the tax credit. The provisions are only applicable to wages paid in taxable years beginning after December 31, 2017.
Attorneys at FHKAD routinely advise employers. For more information about the FMLA, the impact of the new tax law, or other employment matters, contact Grant Bacon at (614) 221-1216 or gbacon@fishelhass.com.