- Posted by Jessica Waltman
- On October 11, 2018
The Internal Revenue Service (IRS) released new guidance to help explain how a federal tax credit for businesses that provide qualified employees with paid family and medical leave will work. The Tax Cut and Jobs Act of 2017 created the employer tax credit for paid leave in section 45(S) of the internal revenue code. The credit is available for employers to claim in tax years 2018 and 2019; it expires in 2020. Organized in frequently asked question (FAQ) format, the new guidance supplements previous FAQs published on the IRS website and is effective as of September 28, 2018.
To qualify for the IRC §45(S) tax credit, an employer must have a written paid family and leave policy in place. Businesses can get the credit if they provide at least two weeks of annual medical and family leave for all qualified full-time employees and a proportionate amount of leave for each part-time qualifying employee. Leave payments must represent at least 50 percent of compensation and apply to all employees with at least one year’s duration of service. For 2018, qualified employers will only get the credit for employees whose annual compensation totaled $72,000 or less in 2017. This salary cap will be revised for the tax year 2019.
The new federal tax credit to incent employers to provide paid family and medical leave in 2018 and 2019, is entirely separate from the New Jersey law on paid sick leave that is set to go into effect on October 29, 2018. That state law, which applies to employers of all sizes and covers virtually all employees, will allow employees to accrue one hour of sick leave for every 30 hours they work with a cap of forty hours a year. Employees may use their paid sick leave when they are ill or use it to take care of family members, and businesses will need to pay their employees for this earned sick time at their regular rate of pay. There are notice and record-keeping requirements for employers, so virtually all businesses will need to make compliance changes and update their paid-time-off policies.
The New Jersey Department of Labor and Workforce Development just issued proposed implementation regulations for the new legislation, which they will finalize after a 60-day review and comment period. When final, Kistler Tiffany Benefits will provide updated guidance to our affected clients about all necessary compliance procedures.