Employer Tax Credits for Paid Family and Medical Time-Off

Preface: Opportunity is missed by most people because it is dressed in overalls and looks like work. — Thomas A. Edison (one of the most influential inventors of all time.)

Employer Tax Credits for Paid Family and Medical Time-Off

Tax legislation with The Consolidated Appropriations Act, 2021 extends the employer credit for paid family and medical time-off through December 31, 2025.

Under unique provisions of the Consolidated Appropriations Act, 2021, the credit for coronavirus related paid sick and family time-off, originally part of the Families First Coronavirus Response Act, was extended through March 31, 2021. The Families First Coronavirus Response Act (Act) provided paid sick leave and expands family and medical time-off for COVID-19 related reasons and creates the refundable paid sick time-off credit and the paid childcare leave credit for eligible employers.

Extended Employer Credit for Paid Family and Medical Leave

Employers who provide paid family and medical time-off to their employees may claim a tax credit which is equal to a percentage of wages they pay to qualifying employees while on family and medical time-off. The credit is effective for wages paid in tax years beginning after December 31, 2017 through December 31, 2025.

With the passage of this legislation employers must have a written policy in place that meets certain requirements, including providing:

        • At least two weeks of paid family and medical time-off (annually) to all qualifying employees who work full time (prorated for employees who work part time), and
        • The qualifying paid time-off 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 compensation of not more than a certain amount.

Family and medical time-off for purposes of the employers who want to claim the credit include:

        • 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 time-off 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 earned 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.

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