By Pension and Benefits Editorial Staff
The IRS has issued additional FAQs regarding the employer credit for paid family and medical leave under Code Sec. 45S. The IRS had previously issued FAQs on the credit in April 2018, and then issued additional guidance in IRS Notice 2018-71 in October 2018. The new FAQs are reflective of that guidance.
Written policy. The FAQs provide that except for the first taxable year of an employer beginning after December 31, 2017, an employer can claim the credit only for leave taken after the written leave policy is in place. The written policy is in place on the later of the policy’s adoption date or the policy’s effective date. For example, if an employer adopts a written policy that satisfies all requirements of Code Sec. 45S on June 15, 2019, with an effective date of July 1, 2019, the employer may claim the credit for family and medical leave paid per that policy to qualifying employees for leave taken on or after July 1, 2019.
For an employer’s first taxable year beginning after December 31, 2017, a written leave policy (whether new or amended) will be in place as of the effective date of the policy or amendment, rather than a later adoption date, if the employer:
- adopted the policy or amendment on or before December 31, 2018, and
- brings its leave practices into compliance with the terms of the retroactive policy or amendment for the entire period it covers, including making any retroactive leave payments no later than the last day of the taxable year.
The FAQs also indicate that in a written policy, an eligible employer must allow at least two weeks of paid family and medical leave (prorated for part-time employees) for all qualifying employees at a rate of at least 50 percent of the wages normally paid to them.
For any qualifying employees not covered by Title I of the FMLA, the employer needs to make sure the employer will not interfere with, restrain, or deny any right under the policy. An employer also needs to make sure it will not discharge or discriminate against any individual for opposing any practice prohibited by the policy. Q&A-3 of Notice 2018-71 has sample language to satisfy this “noninterference” requirement.
Paid leave. Paid leave made available to an employee is considered family and medical leave only if it is:
- specifically designated for one or more FMLA purposes and not used for any other reason, and
- not paid by a state or local government or required by state or local law.
Paid leave allowed under an employer’s short-term disability program, whether self-insured by an employer or through a short-term disability insurance policy, may be characterized as family and medical leave if it meets the requirements under the law.
The FAQs also address what happens if an employer’s written policy allows paid leave that otherwise would be specifically designated for an FMLA purpose, such as care for a spouse, child or parent who has a serious medical condition, except for the fact that the leave is available to care for other individuals not specified in the FMLA , such as a grandchild or grandparent who has a serious medical condition. In this limited circumstance, the fact that leave could also be used to care for other individuals for whom care under the FMLA purpose isn’t required doesn’t prevent the leave from being considered specifically designated for an FMLA purpose. However, the employer may not claim the credit for any leave taken to care for an individual other than a qualifying employee’s spouse, parent or child.
Employer aggregation, controlled groups. The FAQs also confirm that employers are not aggregated for purposes of calculating the credit. All persons treated as a single employer under the law are treated as a single taxpayer. Per this aggregation rule, employers are aggregated for purposes of Code Sec. 45S(h)(1), which states that a taxpayer may elect to have Code Sec. 45S not apply for any taxable year. This is the only purpose for which employers are aggregated.
Each member of a controlled group of corporations and each member of a group of businesses under common control generally makes a separate election to claim or not to claim the credit. However, for a consolidated group, the agent of the group makes the election. They make an election for the taxable year in which the credit is available by claiming or not claiming the credit on either an original return or an amended return filed for that taxable year.
Interested in submitting an article?
Submit your information to us today!Learn More