New Family Leave Credit-IRC Section 45S

Eligible employers can claim a general business credit from 12.5 percent to 25 percent of the cost of each hour of paid leave.  In order to qualify, employers will have to provide at least two weeks of leave to employees at a minimum of 50 percent of their regular earnings.

General Highlights of the New Credit

  • Credit minimum is 12.5% if workers receive half of their earnings
  • Credit maximum is 25% if workers receive their full earnings
  • Applies only to employees who have worked at least a year
  • Employees paid more than $72,000 during 2017 are ineligible (this limitation is adjusted annually for inflation)
  • Must cover part-time employee wages, determined on a prorated basis
  • Credit isn’t available for wages paid after 12/31/2019

An employer must place a separate written policy in their policies that allows all qualifying full-time employees no less than two weeks of annual paid family and medical leave at no less than 50 percent of wages, and also offer a prorated amount for part-time employees.  The compliance and rules are very complex and require detailed written policies.

An employer must also reduce their deduction for wages paid by the amount of the credit claimed.

What Reasons Qualify for Paid Family Leave

  • Birth and/or care of a newborn child
  • Placement of a child with an employee for adoption or foster care
  • Care of the employee their spouse, child, or parent who has a serious health condition
  • Urgent need or condition created by employee’s spouse, child, or parent being on covered active duty
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin

Personal leave, paid vacation, medical, or sick leave other than leave specifically for one of the purposes stated above does not qualify for the credit.  Any leave required by a state or local government does not qualify for the credit, e.g. Oregon recent PTO requirements do not qualify for the credit.