Employers giving paid leave could benefit from permanent tax credit if bill passes

Posted March 8, 2024

In late January, Senators King (I-MA) and Fisher (R-NE) introduced the Paid Family and Medical Leave Tax Credit Extension and Enhancement Act, which would make the employer tax credit for giving paid leave to employees a permanent incentive.

While many employers are not aware of the current tax credit for paid leave, the Tax Cuts and Jobs Act created a two-year general business tax credit for employers that voluntarily offered employees up to 12 weeks of paid family and medical leave (PFML). Congress extended the credit through 2025. This recent measure would make the credit permanent.

State mandates

Currently, employers that provide PFML due to state or local government mandates are ineligible for the credit. This has created situations in which an employer with operations in both non-mandate and mandate states ineligible for the credit, even for leave provided in areas with no mandate.

The bill includes a fix to enable employers in these situations to receive the credit for leave provided in non-mandate states and for leave beyond any state or local mandate.

More options

PFML insurance allows employers to pay monthly premiums towards an insurance plan that pays an employee a percentage of their wages while on qualifying leave. This type of insurance offers an important alternative to one-size-fits-all mandated leave laws.

Accordingly, the bill allows employers to claim the tax credit for part of the premiums they pay. The structure of the credit mirrors the current credit, ensuring that employers can receive up to a 25 percent credit towards the yearly premiums they pay for the plan, depending on the percentage of wages the insurance plan replaces while an employee is on leave.

The bill also gives employers the option to offer PFML to their employees at six months and be eligible to receive the credit.

This article was written by Darlene Clabault of J. J. Keller & Associates, Inc.