The IRS has issued new rules regarding paid family and medical leave credits for employers. The main concern was a provision within the Tax Cuts and Jobs Act – which accounted for tax relief benefits for businesses, that provided paid leave for their employees. The section left the public searching for clarification on how one would qualify for such credits. Effective September 24, the IRS has posted a notice organized in a question and answer format covering topics relating to eligibility, minimum requirements, and how to claim the credit.
Here is a summary of the new rules:
In order for an employer to be eligible, they must have a leave policy, which covers all employees who were not paid more than $72,000 in the previous year. Their policy must also include a minimum of two weeks paid medical and family leave, matching the requirements laid out under Title I of the Family and Medical Leave Act of 1993. This policy also needs to cover at least half of an employee’s pay while he or she is on leave. Any companies with employees who are not covered by Title I of the FMLA must have a written policy that includes language providing “non-interference” protections.
For the sake of the new rules, the IRS has established the definition of an employee as any individual who performs services for an organization under usual common law rules; with qualifying wages being determined under the Federal Unemployment Tax Act, without the $7,000 FUTA wage limitation. They have also made it clear that any paid leave given by State or local governments or required by their laws is not considered when calculating the amount or paid medical or family leave being provided by employers, which means companies are solely responsible for providing these leave benefits in full.
The complete notice given by the IRS is comprised of 34 questions relating to the new rules, and answers to each one. Employers will now be able to clearly understand the new paid family and medical leave policy, and its implications for their businesses.
If you’re interested in learning more of the specifics of this rule change, we encourage you to reach out to our team, and we’ll walk you through it. For more information on other accounting topics, check out our blog.