The conference report has been released and a vote is expected this week on the Tax Cuts and Jobs Act of 2017 (HR 1). The President has indicated that he will sign the bill into law. Click here for the legislative text for the conference report.
One of the provisions retains the Senate language to include an employer credit for paid family and medical leave. This provision was developed by Senator Deb Fischer (R-NE) to provide employers with a tax credit to encourage them to offer paid family leave. UWC provided some technical assistance in the development of this voluntary option for employers. This is viewed as one way to reduce the cost to employers of providing paid family leave and a better approach than a federal mandate that employers pay higher unemployment taxes as was initially proposed through increased solvency requirements in the President’s FY 2018 budget.
There remain a number of definitional and administrative details to be worked out in this relatively short term option, however, Senate staff have been in contact with the IRS, the US Treasury and payroll professionals in preparation for implementation in 2018 (assuming the bill is enacted and signed into law)
Below is the summary description of the new credit that likely will become effective in January and continue through 2019.
Employer credit for paid family and medical leave (sec. 13403 of the Senate amendment, and new sec. 45S of the Code) Conference Report
The provision allows eligible employers to claim a general business credit equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which
such employees are on family and medical leave if the rate of payment under the program is 50 percent of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 percent. The maximum amount of family and medical leave that may betaken into account with respect to any employee for any taxable year is 12 weeks.
An eligible employer is one who has in place a written policy that allows all qualifying full-time employees not less than two weeks of annual paid family and medical leave, and who allows all less-than-full-time qualifying employees a commensurate amount of leave on a pro-rata basis. For purposes of this requirement, leave paid for by a State or local government is not taken into account. A “qualifying employee” means any employee as defined in section 3(e) of the Fair Labor Standards Act of 1938 who has been employed by the employer for one year or more, and who for the preceding year, had compensation not in excess of 60 percent of the compensation threshold for highly compensated employees. The Secretary will make determinations as to whether an employer or an employee satisfies the applicable requirements for an eligible employer or qualifying employee, based on information provided by the employer.
“Family and medical leave” is defined as leave described under sections 102(a)(1)(a)-(e) or 102(a)(3) of the Family and Medical Leave Act of 1993. If an employer provides paid leave as vacation leave, personal leave, or other medical or sick leave, this paid leave would not be considered to be family and medical leave.
This proposal would not apply to wages paid in taxable years beginning after December 31, 2019.
Effective date.−The provision is generally effective for wages paid in taxable years beginning after December 31, 2017.
We continue to work with the Senator Fischer’s staff on the details of this proposal in implementation.