The IRS Answers Questions About the TCJA General Business Creditby
In Notice 2018-71, the IRS addresses 34 questions and answers on the new Section 45S, which was added to the Tax Cuts and Jobs Act to provide a general business credit for employers who provide paid family and medical leave for their employees.
The Q&As address the following topics:
- Who an eligible employer is
- What counts as family and medical leave
- What the minimum leave requirements to be eligible for the credit are, and
- How to calculate and claim the credit
For purposes of the credit, an employer is any person for whom an individual performs services as an employee under the usual common law rules applicable in determining the employer-employee relationship.
Wages qualifying for the credit are determined under the Federal Unemployment Tax Act (FUTA) rules but disregard the $7,000 FUTA wage limit.
The credit itself amounts to a percentage of the wages paid by employers while employees are on paid family or medical leave. Staff members may take a leave of absence for the same reasons as those for which they can take one under Title I of the Family and Medical Leave Act of 1993.
To claim it, an employer must have a written policy that meets the following requirements:
- The policy must cover all qualifying employees; that is, all individuals who have been employed for a year or longer and were paid not more than a specified amount, generally $72,000, during the preceding year.
- The policy must provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying one.
- The policy must provide for payment of at least 50 percent of the qualifying employee’s wages while they are on leave.
- If an employer has qualifying staff members who are not covered by Title I of the FMLA, the company’s written policy must include language providing “non-interference” protections, as described in Section A of Notice 2018-71. Thus, the document must incorporate the substantive rules that must be met for an employer to be eligible for the credit.
Any leave paid by a state or local government or required by applicable laws is not taken into account for any purpose in determining the amount of paid family and medical leave provided by the employer, meaning those amounts do not qualify for the credit.
The notice was effective Sept. 24, 2018 and applies to tax years beginning after Dec. 31, 2017 and up to Dec. 31, 2019. The IRS is requesting comments through Nov. 23, 2018.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.