Form 8994, Employer Credit for Paid Family and Medical Leave
IRS has released 2018 Form 8994 (Employer Credit for Paid Family and Medical Leave), the form to be used by employers to claim the credit for paid family and medical leave that was enacted by the Tax Cuts and Jobs Act (P.L. 115-97, 12/22/2017).
Background. Generally, Code Sec. 45S provides that, for wages paid in tax years beginning in 2018 and 2019, “eligible employers” can claim a general business credit equal to the “applicable percentage” of the amount of wages paid to “qualifying employees” during any period in which such employees are on “family and medical leave” if certain requirements are met. The credit doesn’t apply to wages paid in tax years beginning after Dec. 31, 2019.
To be eligible to claim the credit, an employer must have a written policy that satisfies certain requirements. (Code Sec. 45S(c)(1)) First, the policy must cover all qualifying employees; that is, all employees who have been employed for a year or more and were paid not more than a specified amount during the preceding year. (Code Sec. 45S(d)(1)) 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. (Code Sec. 45S(c)(1)(A)) Third, the policy must provide for payment of at least 50% of the qualifying employee’s wages while the employee is on leave. (Code Sec. 45S(c)(1)(B)) Fourth, if an employer employs qualifying employees who are not covered by title I of the Family Medical Leave Act (FMLA), the employer’s written policy must include language providing certain “non-interference” protections. (Code Sec. 45S(c)(2))
The applicable percentage ranges from 12.5% to 25%; the increase above 12.5% is based on how much more than 50% of the employee’s normal wages the employer pays during the period during which the employee is on family and medical leave. (Code Sec. 45S(a)(2))
Code Sec. 45S provides definitions for “eligible employers,” “qualifying employees,” and “family and medical leave.”
Instructions to Form 8994, in general. The Form 8994 instructions provide detailed rules, definitions and examples with respect to the rules etc. described under “Background” above. The great majority of these rules, etc. repeat what is contained in Notice 2018-71, 2018-41 IRB 548. For discussion of that Notice, see IRS Q&As on new Code Sec. 45S employer credit for paid family and medical leave.
Who must file. In general, any eligible employer who wishes to take the credit must complete Form 8994. Partnerships and S corporations must file the form to claim the credit. However, all other taxpayers must not complete or file the form if their only source for the credit is a partnership or S corporation. Instead, they must report the credit directly on line 4j in Part III of Form 3800, General Business Credit.
Calculating the credit. Form 8994 itself does not provide all the lines needed for computing the credit. On page 8 of the instructions to the form, an optional worksheet is provided for doing additional calculations. That worksheet has columns for the name of each qualifying employee, the amount of family and medical leave wages paid during the tax year to each employee listed in the first column and the applicable percentage. The worksheet also contains one additional column, the credit amount, which is the product of the amount of family and medical leave paid to the employee and the applicable percentage.
On page 9 of the instructions is an additional worksheet, the Applicable Percentage Worksheet. The instructions to that worksheet state that taxpayers should complete a separate version of that worksheet for each separate percentage required and used under the employer’s written policy for the payment of family and medical leave.
Filling out the form. The form consists of four questions to determine that the employer qualifies for the credit, followed by lines on which the employer shows the amount of credit it earned with respect to its own employees and then the amount of credit earned from partnerships and S corporations.
Each of the four questions states that a “No” answer to the question means that the taxpayer should not file Form 8994 and does not qualify for the credit, unless the taxpayer is a partnership or S corporation that received from another entity a credit that must be reported on Line 2 of the form.
Line 1 is used for the amount of credit the employer earned with respect to its own employees. For employers that use the page 8 worksheet, this is the total amount in the last column of that worksheet.
Line 2 is used for the credit pass-through from partnerships and S corporations, as shown on Schedules K-1 that are provided by those entities. Partnerships and S corporations themselves must always report the credits on Line 2. All other filers figuring a separate credit on Line 1 also must report partnership and S corporation credits on Line 2. All other filers not using Line 1 to figure separate credit must report the partnership and S corporation credits directly on Form 3800.
Documentation requirements. Employers should retain the worksheets (or any other document they use for capturing the information shown on the worksheets) in their records. The information needed to support the amount of credit includes the: name and social security number of each qualifying employee; wages paid to each qualifying employee; name and employer identification number of each eligible employer; applicable percentage, and family and medical leave policy.
References: For the employer credit for paid family and medical leave, see FTC 2d/FIN ¶ L-17880 et seq.; United States Tax Reporter ¶ 45S4.01.