Paid Leave Tax Credit Act

Summary#

This bill changes the federal tax credit for paid family and medical leave (section 45S of the tax code). Employers may choose one of two ways to claim the credit: a percentage of wages paid to employees while on leave, or a percentage of premiums paid for an insurance policy that covers paid leave. The bill says the credit for insurance premiums is based on the policy rate even if no employee used leave. It updates who counts as an eligible employee by allowing employers to elect a 6-month service rule (instead of 1 year), requires pay to be annualized and pro-rated for part-time workers, and requires employees to be customarily employed at least 20 hours per week. The bill changes how related employers are grouped for the credit but lets an employer show a "substantial and legitimate business reason" for not providing a written paid-leave policy. It also says leave paid or required by a State or local government generally must be counted when measuring what an employer provides, but such state- or locally-mandated leave cannot be used to claim the federal credit. The bill prevents a double tax benefit by barring a deduction for the portion of premiums equal to the credit. It directs the Small Business Administration and its partners, and the IRS, to do targeted outreach and help employers develop written paid-leave policies. The changes apply to taxable years starting after the bill becomes law.

What it means for you#

• Employers: You can choose to claim the credit on wages paid to workers on leave or on premiums for an employer-paid leave insurance policy. You may use a 6-month hire rule if you elect it. Part-time pay is pro-rated and eligible workers must average at least 20 hours per week. If your employees get state- or local-mandated paid leave, that leave can count for measuring leave provided but cannot be used to claim the federal credit. If you claim the credit for insurance premiums, you cannot also deduct those premium costs for the same amount.
• Employees: The bill does not itself require employers to offer paid leave. It changes the tax rules that may make it easier for some employers to offer paid leave or buy insurance to cover leave.

Expenses#

No publicly available information on budgetary costs or savings is included in the bill text. The bill amends the tax code and takes effect for taxable years beginning after enactment.

Proponents' View#

No explicit statements of policy reasons are in the bill text beyond its provisions. The bill text shows supporters seek to expand employer options for claiming the credit, allow crediting insurance premiums, relax certain tenure rules by allowing a 6-month election and pro-rating part-time pay, prevent double tax benefits for premiums, clarify aggregation rules, and require outreach to small-business partners and employers.

Opponents' View#

No publicly available information on objections or opposition is included in the bill text or metadata provided.