The “Tax Cuts and Jobs Act” legislation signed this morning by President Trump includes the first federal venture into paid Family and Medical Leave Act (FMLA), as it offers a tax credit for companies that provide their employees with paid FMLA leave.
The provision, encoded in tax law as “Employer Credit for Paid Family and Medical Leave,” does not require employers to offer paid leave, but those who choose to do so will be eligible for the new tax credit.
The credit begins at 12.5 percent and rises in one-quarter percentage increments until it reaches 25 percent. The scale reflects how much of the employee’s normal wages are being paid by the employer during the leave period. If the employee is being paid 50 percent of normal pay, then the 12.5 percent credit applies; when the percentage of pay reaches 100, the 25 percent credit kicks in.
Some qualifiers apply. The company must offer all its employees, both full- and part-time, paid FMLA leave privileges (no other type of leave qualifies). For the tax credit to apply, the employee’s leave must be at least two weeks in duration, rising to the full 12 weeks allowed under the FMLA. A “qualifying employee” must have worked at the company for at least a year, and must be paid no more than $72,000 annually. Also, the tax credit applies only to calendar years 2018 and 2019, after which it ends.
Fringe Benefits Deductions and Exclusions
Of note to employers, the new law eliminates deductions for entertainment-related business expenses, though it retains a 50 percent deduction for food and beverage expenses related to legitimate business operations.
Specifically, the bill amends section 274 of the Tax Code to provide that deductions are not allowed for “(1) an activity generally considered to be entertainment, amusement or recreation, (2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or (3) a facility or portion thereof used in connection with any of the above items.”