The IRS announced Sept. 24 that eligible employers who provide paid family and medical leave to their employees may qualify for a new business credit for tax years 2018 and 2019.

In addition, eligible employers who set up qualifying paid family leave programs or amend existing programs by Dec. 31, 2018, will be eligible to claim the employer credit, retroactive to the beginning of the employer’s 2018 tax year, for qualifying leave already provided.

The credit was enacted as part of federal tax reform in 2017 and is available under section 45S of the Internal Revenue Code.

The IRS notice provides detailed guidance on the new credit and clarifies how to calculate the credit, including the application of special rules and limitations.

Key Stipulations

The new tax credit is equal to a percentage of wages paid to qualifying employees while they are on family and medical leave.

The requirements employers must meet include, but are not limited to, the following:

  • An employer must have a written family and medical leave policy that covers all qualifying employees—in general, those employees who did not have compensation from the employer of more than $72,000 in 2017.
  • 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 employee.
  • The policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave.

The new tax credit is equal to a percentage of wages paid to qualifying employees while they are on family and medical leave.
The purposes for which an employee may take family and medical leave under section 45S are the same purposes for which an employee may take family and medical leave under Title I of the Family and Medical Leave Act of 1993.

Good Approach

Providing a tax credit to incentivize businesses to either maintain or create paid family medical leave programs is a much better approach than creating a one-size-fits-all government mandate—a tactic attempted by some lawmakers during the 2018 General Assembly session—says CBIA vice president for government affairs Eric Gjede.

Fraught with problems, that proposal—a state-administered paid FMLA program—would have required $20 million in bonding to cover startup costs and $18.6 million annually to run it. It also would have imposed an untenable burden on many small businesses.

"Such mandates are fiscally unsustainable and drive employers—particularly small businesses—to the point that they're forced to raise prices, cut hours, or lay people off," Gjede said.

"A far better approach to spur much-needed growth is to provide a tax credit for employers that have paid family and medical leave benefit programs."

CBIA supported a bill in last year's legislative session that would have provided such a credit, but the state House failed to act on it.

Be sure to consult the Sept. 24 IRS notice for details on the new federal tax credit and to see if your business qualifies.


For more information, contact CBIA's Eric Gjede (860.480.1784) | @egjede