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Tax Alert: New Guidance on Employer Credit for Paid Family and Medical Leave

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This week, the Treasury Department issued additional guidance on the Employer Credit for Paid Family and Medical Leave. As a reminder, this credit ranging from 12.5% – 25% of wages paid between January 1, 2018 and December 31, 2019, was created in the Tax Cuts and Jobs Act last year.

The 27 pages of newly issued guidance detail employer eligibility, minimum paid leave requirements, requirements of the employer’s written policy, the compensation requirements and limitations, and the process of calculating the credit amount per employee.

The main takeaways are the advanced timing required of the employer’s written paid leave policy, including a transitional period for the employer’s first taxable year beginning after December 31, 2017, the potential eligibility of wages paid by a third-party payer (including an insurance companies) as long as they are not legally required payments, and the first details of the actual process for claiming the credit.

Although the IRS has not released a draft of the Form required, they did request comment on a Form 8994 for the purposes of claiming the credit. Eligible employer will be required to file that Form, once it is drafted and finalized, and Form 3800 for General Business Credits, with their tax returns.

Because there are many additional requirements and details to this program, we encourage you to reach out to your First Advantage Tax Account Manager, or your company’s tax advisor or legal counsel if you believe you may have a paid leave policy that qualifies your organization for this short-term credit program.