The Consolidated Appropriations Act, 2021 extends the employer credit for paid family and medical leave through December 31, 2025. Under separate provisions of the Consolidated Appropriations Act, 2021, the credit for coronavirus related paid sick and family leave, originally part of the Families First Coronavirus Response Act, is extended through March 31, 2021. The Families First Coronavirus Response Act (Act) provides paid sick leave and expands family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid childcare leave credit for eligible employers.
Employer Credit for Paid Family and Medical Leave
Employers who provide paid family and medical leave to their employees may claim a tax credit which is equal to a percentage of wages they pay to qualify employees while on family and medical leave. The credit is effective for wages paid in tax years beginning after December 31, 2017, through December 31, 2025.
Employers must have a written policy in place that meets certain requirements, including providing:
- At least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part-time), and
- The paid leave is not less than 50 percent of the wages normally paid to the employee.
A qualifying employee is any employee under the Fair Labor Standards Act who has been employed by the employer for one year or more and who, for the preceding year, had the compensation of not more than a certain amount.
Family and medical leave for purposes of the credit includes:
- 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.
- To care for a service member who is the employee’s spouse, child, parent, or next of kin.
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per tax year. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%. In certain cases, an additional limit may apply.
An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.
If you have any questions about qualifying for the tax benefits of this credit, please call our office. We are here to help.