IRS issues FAQs on family and medical leave credit

Tax Hot Topics: New Section 45S explained

Tax Hot Topics newsletter The IRS recently issued frequently asked questions regarding the newly enacted income tax credit under Section 45S for employer-paid family and medical leave (FML Credit). In general, eligible employers are allowed an FML Credit equal to 12.5% of wages paid to qualifying employees for family and medical leave. Employers must have a written policy in place that provides a minimum of two weeks of annual paid family and medical leave to qualifying full-time employees (prorated for part-time employees) at a pay rate of at least 50% of an employee’s normal wages.

The FML Credit is increased by 0.25% for each percentage point the pay rate exceeds 50% and is capped at a maximum credit of 25% of wages paid over the leave period. Each qualifying employee is limited to 12 weeks of paid family and medical leave per taxable year. The credit is only available for wages paid in taxable years 2018 and 2019.

A qualifying employee must be an employee under the Fair Labor Standards Act who was employed for at least one year with the employer and who did not have compensation in excess of $72,000 in the preceding year. The FML Credit defines family and medical leave as leave for one or more of the following reasons under Section 102(a) of the Family and Medical Leave Act of 1993:

  1. The birth and care of an employee’s child
  2. Adoption or foster care of an employee’s child
  3. Care for an employee’s spouse, child, or parent with a serious health condition
  4. A serious health condition making the employee unable to perform the functions of his or her positions
  5. Leave due to the employee’s spouse, child, or parent being on or called to covered active military duty
  6. Care for a service member who is the employee’s spouse, child, parent, or next of kin

Eddie Adkins
Washington National Tax Office
T +1 202 521 1565

Jeffrey Martin
Washington National Tax Office
T +1 202 521 1526

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