Key Takeaways

• The criteria for Paid Family and Medical Leave (PFML) are determined by each state.

• Employers currently receive a 12.5% credit on wages paid during PFML according to Code Section 45S.

• Congress has approved a new bill to expand the act and make it a permanent tax law.

Introduction

The Paid Family and Medical Leave Act (PFMLA) offers a lifeline to workers in the US, allowing both full-time and part-time employees to take paid time off for urgent family or medical issues. Recent changes in tax laws are set to enhance these benefits, providing significant tax credits to employers who support their employees through PFML. Here’s everything you need to know about the new tax laws and how they impact employers.

What is Paid Family and Medical Leave?

Paid Family and Medical Leave (PFML) enables employees to take up to 12 weeks off work while still receiving wages to attend to personal or medical concerns. The specifics of PFML vary by state, but the core aim is to ensure that employees can address important life events without financial strain.

Tax Credits From Paid Family and Medical Leave

Under current labor laws, Code Section 45S allows employers to receive a tax credit for offering PFML. To qualify, employers must provide a minimum of two weeks of paid leave, paying at least 50% of the employee’s regular wages. The credit starts at 12.5% of wages paid and increases by 0.25% for every additional 1% of wages paid, up to a maximum of 25%.

This tax credit was established under the 2017 Tax Cuts and Jobs Act and extended through 2025. However, with its expiration approaching, Congress has introduced a new bill to renew and expand these benefits, aiming to make the PFML tax credit permanent.

What’s New on the Paid Family and Medical Leave Tax Credit?

The proposed changes to the PFML tax credit aim to make these benefits more accessible, especially for small businesses. Key updates include:

• Reduced Employment Period: The minimum employment period for qualifying employees has been reduced from 12 months to six months.

• Insurance Premium Credits: Employers can now claim a percentage of their PFML premiums paid in the previous taxable year, regardless of whether employees took leave.

• State Restrictions Lifted: State restrictions on PFML will no longer affect the determination of tax credits.

These enhancements aim to encourage more businesses to offer PFML, improving employee benefits and ensuring better workforce stability.

Increasing Awareness and Support

Despite the benefits, awareness of the PFML tax credit remains low. To address this, the bill calls for targeted outreach from the IRS and Small Business Administration to employers, tax professionals, and payroll service providers. Additionally, it seeks to establish an “Interstate Paid Leave Action Network” to coordinate benefits across states and support employers in filing for tax returns.

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FAQs

What is Paid Family and Medical Leave?

Paid Family and Medical Leave allows US workers to take up to 12 weeks off for personal or medical reasons, with eligibility and conditions varying by state.

What do employers get for providing PFML?

Under Code Section 45S, employers receive a tax credit starting at 12.5% of the wages paid during PFML, provided they pay at least 50% of the employee’s regular wages. The credit increases with higher wage payments, up to a maximum of 25%.

What are the benefits of the changes to Code Section 45S?

The new bill makes PFML tax credits more accessible by reducing the minimum employment period to six months and allowing credits for insurance premiums paid in the previous taxable year. It also removes state restrictions on determining tax credits.

Why is increasing awareness of PFML tax credits important?

Increased awareness will help more employers take advantage of these benefits, leading to better employee welfare and more stable business operations.