Is the New Employer Tax Credit for You?

Under the Internal Revenue Code of 1986, as amended (the “Code”), businesses are entitled to a general business credit which is made up of several component credits, including the Work Opportunity Credit, the Indian Employment Credit, credits for employing and housing employees affected by Hurricane Katrina, and a number of others. The recently-enacted Tax Cuts and Jobs Act (“TCJA” or the “Act”) added a new component credit for businesses that qualify – the Paid Family and Medical Leave Credit (“FML Credit”).[1] This new credit entitles an eligible employer to a credit equal to anywhere from 12.5-25% of the wages that it pays to “qualifying employees” who are on covered leave, provided that employees are entitled to receive – and do receive – not less than 50% of their regular wages for their hours on covered leave. For this purpose, a “qualifying employee” is any employee (within the meaning of the Fair Labor Standards Act) who has been employed by the employer for at least 12 months and who, in the preceding year, received compensation not in excess of 60 percent of the amount applicable for such year under section 414(q)(1)(B)(i) of the Code (part of the definition of “highly compensated employee” for purposes of employee benefit plans); the applicable amount for 2017 was $120,000, so “qualifying employees” for 2018 cannot have earned more than $72,000 (i.e, $120,000 x .60) in 2017.

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