Guidance on Moving Expenses and Family and Medical Leave Credits

| 9/27/2018

Moving expenses
The Tax Cuts and Jobs Act (TCJA) made taxable employer reimbursements for qualified moving expenses in employee relocations.

Because of some uncertainty in the application of the statute, the IRS issued Notice 2018-75 to clarify that qualified moving expenses incurred in 2017 but not reimbursed by an employer until 2018 are excludible from the employee’s taxable income. Employers that already withheld income and payroll tax on any such moving expenses can make use of the Section 6413 adjustment process or the Section 6402 refund claim process to adjust 2018 withholdings.

Family and medical leave credit
The TCJA included a new credit for employers that offer paid time off for family and medical leave. The credit is available even if the employer is not subject to the Family and Medical Leave Act of 1993 (FMLA). The credit equals 12.5 percent of qualified wages paid to an employee when the wages total at least 50 percent of regular full-time wages for that employee. The credit increases by 0.25 percent for each percentage point increase in family and medical leave pay, up to a maximum of 25 percent. Amounts required to be paid for family and medical leave by state or local law are not eligible for the credit.

The IRS answered several commonly asked questions about the credit in Notice 2018-71, which addressed the following issues among others:

  • In order to qualify for the credit, employers must enact a written policy that:
    • Covers all employees who have been employed more than one year and who were not paid more than a specified amount in the prior year ($72,000 for family and medical leave taken in 2018)
    • Provides at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate share of family and medical leave for part-time qualifying employees
    • Provides for the payment of at least 50 percent of the employee’s wages while on leave
    • Includes noninterference protections if the employer has any employees not covered by Title 1 of the FMLA
    • Offers leave that is designated for family and medical leave purposes and may not be used for any other purpose
  • In general, the written policy must be in place before a qualifying employee uses any family and medical leave. However, employers may retroactively put in place a written plan for their first tax year beginning after Dec. 31, 2017, and claim the credit if the plan does both of the following:
    • Adopts the policy on or before the last day of the tax year
    • Brings the employer’s leave practices into compliance with the policy for the entire period covered by the policy, including making retroactive wage payments, no later than the last day of the tax year
  • Paid leave under a short-term disability program that otherwise meets requirements to be family and medical leave can qualify for the credit.
  • Employers can claim a credit for wages paid by a third-party payer, such as a professional employer organization (PEO).
  • Employers that claim the credit must reduce their deduction for the affected employee’s wages by the amount of the credit.

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Rochelle Hodes
Rochelle Hodes
Principal, Washington National Tax