Fed Gov’t Provides Employer Guidance on Tax Credit for Short-Term Disability Policy and Paid Leave

The Federal government just released new tax credit guidance regarding employer-offered paid family and medical leave plans. Pursuant to the Tax Cuts and Jobs Act (the Act), employers who voluntarily offer paid family and/or medical leave may be eligible for a tax credit in 2018 and 2019 if their written paid leave plan meets certain criteria, such as:

  • providing full-time qualifying employees at least two weeks (annually) of paid family and medical leave for reasons allowed by the federal Family and Medical Leave Act (FMLA) and must provide part-time qualifying employees a proportionate amount of paid family leave (based on the part-time employee’s expected work hours);
  • offering paid benefits of at least 50% of normal pay;
  • including a non-retaliation provision in the policy if the policy provides paid family and medical leave for employees who aren’t covered, or whose employers are not covered, under the Family and Medical Leave Act.

Examples Provide Clarity
The guidance offers much needed direction while we wait for the official regulations under the Act. Employers and tax advisors now have a clearer understanding, complete with examples, of how to claim the tax credit and answers to such questions as:

Q. Does a short-term disability policy qualify?
A. Yes, it could.

Q. Can employers offer paid leave for reasons not qualified under the FMLA?
A. Yes, but only those reasons covered by the FMLA are eligible for the credit; reasons such as vacation or personal leave are not eligible.

Q. If an employer established a paid leave plan later this year, can they still get the tax credit for 2018?
A. Yes, if the plan is retroactive to the beginning of the year, paying out retroactively.

While the new Guidance provides much needed direction when it comes to claiming the tax credit, the overall leave and absence landscape continues to encounter various regulations with compounding implications. Which makes trying to ensure compliance and accuracy across an organization a challenge.

FINEOS Absence includes capabilities for paying benefits under employer paid leave plans and short-term disability policies, providing accurate benefit payments. With FINEOS Absence, employer paid plans and short-term disability policies can run concurrently with unpaid leave laws such as FMLA and state-equivalent leave laws.

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