A tax credit for wages paid to employees taking FMLA leave may generally be taken by employers who have a written paid family and medical leave policy that:
- Provides all qualifying full-time employees—employees who have been employed for a year or more and who had compensation of not more than $72,000 in the preceding year—at least 2 weeks of annual paid family and medical leave;
- Allows all less-than-full-time qualifying employees a commensurate amount of leave on a pro rata basis;
- Pays at least 50% of the wages normally paid to an employee; and
- Includes the following language: “[Employer] will not interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under this policy. [Employer] will not discharge, or in any other manner discriminate against, any individual for opposing any practice prohibited by this policy.”
Paid vacation leave, personal leave, or medical or sick leave other than leave under the FMLA is not considered FMLA leave for purposes of the credit.
Amount of Credit
Employers meeting the requirements outlined above may claim a general business credit in the amount of 12.5% of the amount of wages paid to qualifying employees while they are on family and medical leave. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.
Under current law, the credit only applies to tax years 2018 and 2019.
For a more comprehensive look at this information, download SIMA’s Compliance Overview here.