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handle is hein.crs/goveksi0001 and id is 1 raw text is: Informing ressona& Researet, Service heled Ilive debato sin'e 1914 0 Updated February 27, 2023 Employer Tax Credit for Paid Family and Medical Leave Employers providing paid family and medical leave to their employees may be able to claim a tax credit under Section 45S of the Internal Revenue Code (IRC). This In Focus (1) provides an overview of the employer credit for paid family and medical leave; and (2) highlights potential issues to consider when evaluating the credit. The E mployer Cred it for Paid F amily and Medicad Leave The employer credit for paid family and medical leave (FML) can be claimed by employers providing paid leave (wages) to employees under the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3). The credit can be claimed for wages paid during tax years that begin in 2018 through 2025. The credit rate depends on how much employers provide for paid FML relative to wages normally paid. If paid leave is 50% of wages normally paid to an employee, the tax credit is 12.5% of wages paid. If paid leave is 100% of wages normally paid to an employee, the tax credit is 25% of wages paid. The credit rate increases from 12.5% to 25% ratably as leave wages increase from 50% to 100% of wages normally paid. No credit can be claimed for paid FML that is less than 50% of wages normally paid. Further, no credit can be claimed for wages paid on leave that exceed an employee's normal wage rate. The credit can only be claimed for paid FML provided to certain lower-compensated employees. For wages paid to an employee to be credit eligible, compensation to the employee in the preceding year cannot exceed 60% of a highly compensated employee threshold. For 2023, employee compensation in 2022 cannot have exceeded $81,000. Further, for an employer to claim a credit for wages paid to an employee, the employee must have been employed by the employer for at least 12 months. The amount of paid FML wages for which the credit is claimed cannot exceed 12 weeks per employee per year. Further, all qualifying employees must be provided at least two weeks of paid FML for an employer to be able to claim the credit (the two-week period is proportionally adjusted for part-time employees). Tax credits cannot be claimed for leave paid by state or local governments, or for leave that is required by state or local law. Thus, this tax incentive does not reduce the cost of providing leave in jurisdictions where employers are required to do so by a state or local authority. A tax credit can only be claimed for wages paid for family and medical leave. If an employer provides paid leave (e.g., vacation, personal, or sick leave) that is not specifically set aside for a FMLA-qualifying purpose, that leave is not considered FML leave. Family and medical leave is restricted to leave associated with (1) the birth of a child or placement of an adopted or foster child with the employee; (2) a serious health condition of the employee or the employee's spouse, child, or parent; (3) an exigency arising out of the fact that a close relative is a member of the Armed Forces and on covered active duty; or (4) to care for a covered servicemember who is a close relative of the employee. For employers, there are other requirements associated with the credit. To claim the credit, an employer must have a written family and medical leave policy in effect. The policy cannot exclude certain classifications of employees (e.g., unionized employees). Additionally, a qualified employer is required to claim the credit, unless the employer opts out. For employers, the amount of wages and salaries deducted as a business expense is reduced by the amount of credit claimed. Further, the credit cannot be claimed if wages have been used to calculate another tax credit (to avoid a double tax benefit). The credit is part of the general business credit, meaning that unused credits from the current tax year can be carried back one year (offsetting the prior year's tax liability) or carried forward up to 20 years to offset future tax liability. The credit is allowed against the alternative minimum tax (AMT). Legislative Background The employer credit for paid family and medical leave was enacted as part of the 2017 tax revision (P.L. 115-97) (commonly referenced as the Tax Cuts and Jobs Act, or TCJA). When enacted, this credit was made available for two years, 2018 and 2019. The credit's primary sponsor, Senator Deb Fischer, called this credit a two-year pilot program, after which there would be an opportunity to evaluate whether the credit was achieving its intended goals. The credit was extended through 2020 in the Further Consolidated Appropriations Act, 2020 (P.L. 116-94) and through 2025 in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of P.L. 116-260). Estimated Revenue Loss of the Credit When the credit was first enacted, the Joint Committee on Taxation (JCT) estimated the two-year tax credit would reduce federal revenue by $4.3 billion between FY2018 and FY2027. The one-year extension through 2020 was estimated to reduce federal revenue by an additional $2.2 billion between FY2020 and FY2029, while the subsequent extension through 2025 was estimated to reduce federal revenues by an additional $3.8 billion between FY2021 and FY2030. While most of the revenue losses are expected to occur before the credit's termination, revenue losses are

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