The IRS recently released a revised Form 8994: Employer Credit for Paid Family and Medical Leave and its instructions, which are used to claim the tax credit for providing paid family and medical leave. The credit, which was first available only for tax years beginning in 2018 and 2019 and then later extended through 2020, was further extended through 2025 by the Consolidated Appropriations Act of 2021.
It is important to note that this tax credit is different from the COVID-19 related tax credits for paid leave provided via the FFCRA through March 31, 2021. Employers may complete Form 8994 when they provide family and medical leave to their employees, in order to claim a tax credit. In order to claim the credit, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee.
Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with the written policy for one or more of the following reasons:
- Birth of an employee’s child and to care for the child.
- Placement of a child with the employee for adoption or foster care.
- To care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to do the functions of their position.
- Any qualifying exigency due to an employee’s spouse, child or parent being on covered active duty (or having been notified of an impending call or order to cover active duty) in the armed forces.
- To care for a service member who’s the employee’s spouse, child, parent or next of kin.
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. An employer can claim credit only for leave taken after the written policy is in place, and the credit is scheduled to now expire December 31, 2025.
Form 8994 and its instructions have been updated to reflect the extension through 2025 and to explain that wages used to determine COVID-19-related employment credits cannot also be used to determine these credits. In addition, the IRS states that Form 8994 and its instructions will no longer be updated annually. Rather, updates will occur only when necessary.
Employers seeking to claim this credit should work with their accountants or tax professionals to do so.
Form 8994 »
Form 8994 Instructions »