Important Labor & Employment Provisions Included in Federal Tax Bill

By: Ilyse Schuman, Tom Cryan, and Michael J. Lotito, Littler Mendelson P.C.

In addition to the well-publicized tax changes included in the Tax Cuts and Jobs Act (H.R. 1) recently signed by President Trump, there were many labor and employment changes that will impact businesses. Most significant among them was the creation of a Paid Family and Medical Leave Tax Credit. In a recent article, attorneys from Ohio Chamber Member Littler Mendelson P.C. wrote the following about the change:

While several state and local governments have enacted paid leave-related bills over the years, federal legislation on this topic has failed to advance. The tax bill offers the first paid leave-related measure at the national level. The bill does not require employers to provide paid leave, but rather offers employers that provide a certain level of paid family and medical leave to their employees a tax credit as an incentive. The law creates a new section in the tax code, Employer Credit For Paid Family And Medical Leave.

How Much of a Credit is Offered?

Eligible employers will be able to claim a general business tax credit equal to 12.5% of the wages they pay to qualifying employees when they take family and medical leave. The credit is available only if the employer pays the employees on leave at least half of their hourly rate (or a prorated amount if they are not paid hourly), and only if the employer provides at least two weeks of paid family and medical leave per year. Employers that pay their employees on leave more than 50% replacement wages will be entitled to a greater tax credit. Specifically, the credit will increase by a quarter percentage point for every percent above the 50% rate the employer pays the employee on leave, up to a maximum tax credit of 25% if the employer pays the employees 100% of their regular wages. This credit is available for up to 12 weeks of paid leave per employee per year.

Which Employees Must Be Offered Paid Leave?

Both full-time and part-time employees must be offered paid leave for an employer to be able to claim the tax credit. Employers must allow part-time employees to take a commensurate amount of paid leave, determined on a pro-rata basis. A “qualifying employee” is an individual who is employed by the employer for at least a year, and paid no more than 60% of the compensation threshold for designation as a highly compensated employee under the tax code, or $72,000 (60% of $120,000, per Sec. 414(g)(1)(B) for 2017).

What Type of Leave Must Be Offered?

The tax credit applies for “family and medical leave,” as defined under sections 102(a)(1)(a)-(e)or 102(a)(3) of the Family and Medical Leave Act. Other types of leave such as paid vacation leave, personal leave, or other types of medical or sick leave are not considered family and medical leave for tax credit purposes.

When Would This Leave Apply?

The credit would apply to wages paid in taxable years starting in 2018. The credit would not apply to wages paid in taxable years starting after December 31, 2019.”

To continue reading about the other labor and employment provisions included in the bill, please click HERE to access the complete article.