This fall, the IRS published Notice 2018-17 which announced that eligible employers who provide paid family and medical leave to their employees might qualify for a new business credit for tax years 2018 and 2019. The notice offers comprehensive guidance on the new credit, which was enacted by the 2017 Tax Cuts and Jobs Act (TCJA) and provides resources to business owners.
The TCJA changed several tax laws that affect businesses, including the method by which tax should be calculated for most taxpayers as well as those with substantial income not subject to withholding, such as small business owners and self-employed individuals. Among other changes, the new law reformed the tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit, and limited or discontinued certain deductions.
In a question-and-answer format, the notice offers clarification on how to calculate the credit. For example, the credit applies only to paid family and medical leave provided to employees whose prior- year compensation was at or below certain levels. Generally, for the tax year 2018, the employee’s 2017 salary from the employer must have been $72,000 or less.
Eligible employers who set up qualifying paid family leave programs or amend existing programs by Dec. 31, 2018 also will be eligible to claim credit for paid family and medical leave, retroactive to the start of the 2018 tax year, for leave already provided.