If you’re a small business owner who has provided paid FMLA leave to an employee, you may have heard about this credit. It can be a great way to earn back some of the wages you paid your employee while they were gone.
However, you have to consider your eligibility, the credit’s availability (especially since it may expire on January 1, 2026), and how much of the credit you’re entitled to.
At CSI Accounting & Payroll, we’ve worked with small business taxes for over 50 years. That means we’ve advised thousands of small business owners on tax credits, including addressing these questions about the family and medical leave tax credit:
- What is the employer credit for paid family and medical leave? Who is eligible?
- Will the credit expire?
- What is the calculation for the credit?
About the Employer Credit for Paid Family & Medical Leave
This credit, also called Section 45S, is for employers who have provided paid family and medical leave (FMLA) to an employee.
It can be difficult to qualify for this credit since it’s not often that an employee will request this type of leave. To make sure you’re eligible, you must make sure it meets your written policy for FMLA leave – not just regular leave:
- Reason for leave. They must be taking leave for an FMLA-approved reason. This does not include paid vacation leave, personal leave, or other medical or sick leave.
- Length of employment. They must be your full-time or part-time employee for at least one year.
- Length of leave. They can be paid for up to 12 weeks per year for FMLA leave.
- Income cap. For the prior year, the employee made at or below 60% of the prior year's threshold for a highly compensated employee. For 2023, this amount is $150,000 – so they would need to make $90,000 or less that year.
- FMLA pay provided. While on leave, you pay the employee at least 50% of their wages for that time period.
Tax Credit Expiration
The paid family and medical leave credit is set to expire on January 1, 2026. Claim it while you can!
Why is it being discontinued? It’s part of Donald Trump’s tax cuts from his presidency, which all have a set date to expire.
There is currently no plan to replace the credit when it expires. However, after the election, Congress will meet and decide whether or not to extend or expand it.
Calculating the Tax Credit
Although it’s hard to qualify for this credit, let’s say you do qualify. Is it worth claiming? It depends on the value of your credit since it isn’t the same for everyone.
The credit can be worth 12.5-25% of the wages paid during leave.
To calculate your credit value, you will need to know the employee’s regular wages versus the wages paid during leave. (Remember, while on leave, you pay the employee at least 50% of their regular wages for that time period.)
Starting at 12.5%, increase the credit by 0.25% for each percentage of wages paid during leave that exceeds the mandatory 50%.
Example Situation
For example, your employee makes $1,000 per week and takes six weeks of FMLA leave. In a normal six-week period, they would make $6,000, so you would need to pay them at least $3,000 – which is 50% of their regular wages.
Minimum Pay Example
If you paid them the $3,000 (50% of regular wages), your credit would be 12.5% of $3,000 – which is $375.
Higher Pay Example
Let’s say you paid $3,500 (58.33% of regular wages). Since you paid 8.33% more than mandatory, your credit increases to 14.58% (8.33 * 0.25 = 2.08, then 12.5 + 2.08 = 14.58) of $3,500 – which is $510.30.
Remember, there is a cap of 25% for this credit. That means that paying 100% of wages will get you to the cap, leaving a credit of $1,500 for this example.
Get Help Claiming the Best Tax Credits
Having trouble figuring out if you’re eligible or calculating your credit? No worries! CSI has your back. As an accounting and payroll provider, our two departments can easily communicate the details of this credit, including handling and tracking FMLA leave pay.
Now that you know what the family and medical leave credit is, who is eligible, that the credit is expiring in 2026, and how to calculate it, are you ready to check out monthly accounting and payroll services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about other credits that you may be eligible for.
