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IRS Issues Updated Form 8994 for Employer Tax Credit for Paid Family and Medical Leave

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EBIA  

IRS Form 8994 (Employer Credit for Paid Family and Medical Leave) (Jan. 2021) and Instructions

Form 8994

Instructions

The IRS has issued an updated Form 8994, which is used by employers to figure the tax credit for providing paid family and medical leave (see our Checkpoint article). To claim the credit, eligible employers must have a written program that pays at least 50% of wages to qualified employees for at least two weeks of annual paid family and medical leave. Eligible employers paying 50% of wages may claim a general business credit of 12.5% of wages paid for up to 12 weeks of family and medical leave a year, with the credit increasing to as much as 25% if the rate of payment exceeds 50%. The credit, which was initially available only for tax years beginning in 2018 and 2019, was later extended through 2020 (see our Checkpoint article). The Consolidated Appropriations Act, 2021 (see our Checkpoint article) has now extended the credit through 2025.

Form 8994 and its instructions have been updated for the extension. The instructions also note the interaction of this credit with the COVID-19-related tax credit for provision of paid leave, which is currently available for wages paid for certain leaves taken through March 31, 2021 (see our Checkpoint article.) The instructions explain that the same wages cannot be used to figure both credits. Otherwise, there are no substantive changes, and the IRS has indicated that, going forward, the form and instructions will no longer be updated annually but will only be revised when necessary.

EBIA Comment: Employers that provided paid family and medical leave during the 2020 tax year—especially those that also provided paid leave related to COVID-19—will want to review the updated form and instructions when preparing their tax returns. For more information, see EBIA’s Group Health Plan Mandates manual at Section XVII.M.7 (“Employer Tax Credit for Paid Family and Medical Leave”).

Contributing Editors: EBIA Staff.

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