Part III - Administrative, Procedural and Miscellaneous ...

1 Part III - Administrative, Procedural and Miscellaneous Employer credit for paid family and medical leave Notice 2018-71. PURPOSE. This notice provides guidance on the employer credit for paid family and medical leave under section 45S of the Internal Revenue Code (Code). This notice also announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to publish proposed regulations under section 45S. BACKGROUND. Section 45S was added to the Code by An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the Act), Pub.

2 L. 115-97, 131 Stat. 2504, enacted December 22, 2017. For purposes of section 38, regarding the general business credit, section 45S establishes a business credit for employers that provide paid family and medical leave (the credit). The credit is equal to a percentage of wages paid to qualifying employees while they are on family and medical leave. As explained below, the purposes for which an employee may take family and medical leave under section 45S are the same purposes for which an employee may take family and medical leave under title I of the Family and Medical Leave Act of 1993, as amended (FMLA), Pub.

3 L. 103 3; 29 sec. 2601. The questions and answers in this notice provide further details regarding the requirements of section 45S, but a brief summary follows. To be eligible to claim the credit, an employer must have a written policy that satisfies certain requirements. First, the policy must cover all qualifying employees; that is, all employees who have been 1. employed for a year or more and were paid not more than a specified amount during the preceding year. In general, in determining whether an employee is a qualifying employee in 2018, the employee must not have had compensation from the employer of more than $72,000 in 2017.

4 Second, the policy must provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee. Third, the policy must provide for payment of at least 50 percent of the qualifying employee's wages while the employee is on leave. Fourth, if an employer employs qualifying employees who are not covered by title I of the FMLA, the employer's written policy must include language providing non-interference protections, as described in Section A of this notice.

5 Thus, the written policy must incorporate the substantive rules that must be met in order for an employer to be eligible for the credit. Any leave paid by a State or local government or required by State or local law is not taken into account for any purpose in determining the amount of paid family and medical leave provided by the employer. Thus, any such leave is not taken into account in determining the amount of paid family and medical leave provided by the employer, the rate of payment under the employer's written policy , or the determination of the credit.

6 For purposes of the credit, an employer is any person for whom an individual performs services as an employee under the usual common law rules applicable in determining the employer-employee relationship. Similarly, wages qualifying for the credit generally have the same meaning as wages subject to the Federal 2. Unemployment Tax Act (FUTA) pursuant to section 3306(b), determined without regard to the $7,000 FUTA wage limitation. GUIDANCE. This notice includes sections on the following topics: A. Eligible Employer B.

7 Family and Medical Leave C. Minimum Paid Leave Requirements D. Calculating and Claiming the Credit E. Effective Date A. ELIGIBLE EMPLOYER. The credit is available only to eligible employers. Under section 45S(c)(1), an eligible employer is an employer that has a written policy in place that satisfies the requirements set forth in Q&A-2 below. Question 1: Must an employer be subject to title I of the FMLA to be an eligible employer under section 45S? 1. Answer 1: No. Any employer will be an eligible employer under section 45S if it has a written policy in place that provides paid family and medical leave, as described in Section B of this notice, satisfies the minimum paid leave requirements set forth in Section C of this notice, and, if applicable, includes the non-interference language described in Q&A-3.

8 Question 2: What must an eligible employer's written policy provide? 1 Section 101(4) of the FMLA defines employer as any person engaged in commerce or in any industry or activity affecting commerce who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year, which includes (a) any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer;. and (b) any successor in interest of an employer; and includes any "public agency," as defined in section 3(x) of the Fair Labor Standards Act of 1938 (29 203(x)).

9 3. Answer 2: An eligible employer's written policy must provide paid family and medical leave, as described in Section B of this notice (Q&A-8 through Q&A-11) and must satisfy the minimum paid leave requirements set forth in Section C of this notice (Q&A- 12 through Q&A-21). In summary, an eligible employer's written policy must provide all qualifying employees with at least two weeks of paid family and medical leave (prorated for part-time employees), at a rate of at least 50 percent of the employee's normal wages, as these terms are defined and described in more detail in Sections B and C of this notice.

10 In addition, if the employer employs any qualifying employees, as defined in Q&A-12, who are not covered by title I of the FMLA, the employer's written policy must include non-interference language, as set forth in Q&A-3. Question 3: If an employer employs any qualifying employees who are not covered by title I of the FMLA, do additional requirements apply in determining whether the employer is an eligible employer? 2. Answer 3: Yes. If an employer employs at least one qualifying employee who is not covered by title I of the FMLA (including any employee who is not covered by title I of the FMLA because he or she works less than 1,250 hours per year), in accordance with section 45S(c)(2), the employer must include non-interference language in its written policy and comply with this language to be an eligible employer.