Paid Family Leave Tax Credit Gets a Major Overhaul: More Options, New Rules

The "Paid Family and Medical Leave Tax Credit Extension and Enhancement Act" significantly revamps the existing tax credit for businesses that offer paid family and medical leave. Instead of a one-size-fits-all approach, the bill gives employers two ways to calculate the credit: based on a percentage of wages paid to employees on leave, or a percentage of the total premiums paid for a paid family and medical leave insurance policy. This could be a game-changer for how businesses structure their leave benefits.

Rethinking the Rules

The bill tweaks several key rules. For example, it revises how "single employers" are defined, adding exceptions for businesses that might not have a written paid leave policy for legitimate reasons. It also clarifies that while state or local mandated leave counts towards the total amount of paid leave an employer offers, it doesn't factor into the tax credit calculation itself. This could impact businesses in states with existing paid leave programs.

Who's In, Who's Out?

Employee eligibility also gets a makeover. To qualify for leave that counts towards the credit, an employee must have worked for the employer for at least a year, and their compensation must be calculated on an annualized basis. Critically, the employee must also be "customarily employed" for at least 20 hours per week. This could exclude some part-time workers or those with variable schedules. For example, a retail worker whose hours fluctuate seasonally might not meet the 20-hour requirement, even if they've worked for the company for over a year. (SEC. 2).

Dollars and Deductions

The bill also prevents employers from "double-dipping." They can't deduct the portion of paid leave premiums that's equal to the tax credit they receive. This makes sense from a tax perspective – you shouldn't get a tax break for an expense that's already being offset by a credit.

Getting the Word Out

Recognizing that many businesses might not even know about the existing credit, the bill tasks the Small Business Administration (SBA) and the Treasury with conducting outreach. This includes targeted communications, training, and even help with developing written paid family leave policies. This could be especially beneficial for smaller businesses that may lack dedicated HR departments. (SEC. 2).

There is a removal of a subsection, but the text does not specify what it is. This can cause confusion and potentially be a loophole for employers. (SEC. 2).

Overall, this bill aims to make paid family and medical leave more accessible, but the changes to eligibility and calculation methods could have significant real-world impacts, both positive and negative, depending on how businesses adapt.