SHOW ME THE MONEY: IRS Issues First FAQs on Employer Tax Credit for Paid Family and Medical Leave

*By Stephen S. Zashin

The recently enacted Tax Cuts and Jobs Act of 2017 (the “Act”) created an employer tax credit for paid family and medical leave provided to employees. Specifically, Internal Revenue Code section 45S provides a general business tax credit to employers that voluntarily offer paid family and/or medical leave to their employees. On April 9, 2018, the Internal Revenue Service (“IRS”) issued a set of frequently asked questions (“FAQs”) that provides guidance to employers planning to take advantage of the tax credit.

The FAQs provide an informative overview of the tax credit and clarify several definitions. For instance, the FAQs provide that for purposes of the credit, “paid family and medical leave” includes time off for the following:

• Birth of an employee’s child and to care for the child;
• Placement of a child with the employee for adoption or foster care;
• To care for the employee’s spouse, child, or parent who has a serious health condition;
• A serious health condition that makes the employee unable to perform the functions of his or her position;
• Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces; and
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.

The FAQs note that an employer cannot claim the credit for any paid leave provided by the employer to comply with a state or local law or for leave paid by a state or local government. Additionally, if an employer provides paid vacation leave, personal leave, or medical or sick leave, that paid leave is not considered “family and medical leave” and is not eligible for the credit.

Other FAQs address the effective dates of the credit, how the tax credit is calculated, and how to adjust the deduction for wages if an employer elects the credit. Notably, unless extended by Congress, the credit only applies to tax years 2018 and 2019.

The IRS expects to provide additional information on the following:

• When the written policy must be in place?
• How paid “family and medical leave” relates to an employer’s other paid leave?
• How to determine whether an employee has been employed for “one year or more?”
• How state and local leave requirements will impact the credit?
• How members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit?

Z&R will continue to monitor additional IRS guidance on the paid family and medical leave tax credit and report any significant developments. Until additional guidance is issued, employers should contact counsel to determine if they can take advantage of this tax credit.

*Stephen S. Zashin is an OSBA Certified Specialist in Labor and Employment Law and the head of Zashin & Rich’s Labor, Employment and Sports Law Groups. Stephen regularly litigates FMLA cases and provides employers with FMLA guidance. For more information about the paid family and medical leave tax credit, please contact Stephen at ssz@zrlaw.com or 216.696.4441.