The Tax Cuts and Jobs Act created a new federal tax credit for employers that provide qualified paid family and medical leave to their employees. It’s subject to numerous rules and restrictions and the credit is only available for two tax years — those beginning between January 1, 2018, and December 31, 2019. However, it may be worthwhile for some businesses.
The value of the credit
An eligible employer can claim a credit equal to 12.5% of wages paid to qualifying employees who are on family and medical leave, if the leave payments are at least 50% of the normal wages paid to them. For each 1% increase over 50%, the credit rate increases by 0.25%, up to a maximum credit rate of 25%.
An eligible employee is one who’s worked for your company for at least one year, with compensation for the preceding year not exceeding 60% of the threshold for highly compensated employees for that year. For 2019, the threshold for highly compensated employees is $125,000 (up from $120,000 for 2018). That means a qualifying employee’s 2019 compensation can’t exceed $72,000 (60% × $120,000).
Employers that claim the family and medical leave credit […]
What’s new for 2018 California tax returns? The list of changes is long. That’s why the CA Franchise Tax Board has created a “Taxnews” page, with information about tax filing. The page includes information about credits such as the earned income credit, the new employment credit and the CA Competes credit, plus instructions for many other tax topics.
A few of the highlights include:
Federal Tax Reform
The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the Internal Revenue Code (IRC). In general, California Revenue and Taxation Code does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. The IRS issued Notice 2019-11 to provide for a waiver of the estimated tax penalty for taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the TCJA, the far-reaching tax reform law enacted in December 2017. For California purposes, the TJCA had no general impact to the […]
Under pre-Act law, funds in a Code Sec. 529 college savings account could only be used for qualified higher education expenses. If funds were withdrawn from the account for other purposes, each withdrawal was treated as containing a pro-rate portion of earnings and principal. The earnings portion of a non-qualified withdrawal was taxable as ordinary income and subject to a 10% additional tax unless an exception applied.
“Qualified higher education expenses” included tuition, fees, books, supplies, and required equipment, as well as reasonable room and board if the student was enrolled at least half-time. Eligible schools included colleges, universities, vocational schools, or other post-secondary schools eligible to participate in a student aid program of the Department of Education. This included nearly all accredited public, nonprofit, and proprietary (for-profit) post-secondary institutions.
New law. For distributions after Dec. 31, 2017, “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year. (Code Sec. 529(c) (7), as added by Act Sec. 11032(a))
Small employers should be aware of changes to the small business health care tax credit, a provision in the Affordable Care Act that gives a tax credit to eligible small employers who provide health care to their employees.
Beginning in 2014, there are changes to the tax credit that may affect your small business or tax-exempt organization:
- Credit percentage increased from 35 percent to 50 percent of employer-paid premiums; for tax-exempt employers, the percentage increased from 25 percent to 35 percent.
- Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
- For 2014, the credit is phased out beginning when average wages equal $25,400 and is fully phased out when average wages exceed $50,800. The average wage phase out is adjusted annually for inflation.
- Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit. Transition relief from this requirement is available to certain small employers.
Small employers may still be eligible to claim the tax credit for tax years 2010 through 2013. Employers who were eligible to […]
On December 19th, President Obama signed into law HR 5771, the “Tax Increase Prevention Act of 2014″ (TIPA). The bill generally provides for a 1-year extension, through 2014, of over 50 expired or expiring individual, business, and energy provisions which exist year after year, although on a temporary basis.
TIPA retroactively extends the research credit for one year to apply to amounts paid or accrued before January 1, 2015.
So, because the extension of the research credit is retroactive to include amounts paid or incurred after December 31, 2013, taxpayers, such as fiscal year corporations that already filed returns for fiscal years that ended in 2014, should consider filing an amended return to claim a refund for the amount of any additional tax paid because of not claiming amounts now eligible for the tax credit.
Written by Mike Musson, CPA, Partner
The IRS recently reminded taxpayers that back-to-school time is a good time to see if they qualify for education-related tax credits. The American Opportunity Credit (AOC) and Lifetime Learning Credit (LLC) are available to taxpayers who pay qualifying expenses for eligible students. The maximum AOC is $2,500 per student, 40% refundable, and available for the first four years of postsecondary education. The LLC is limited to $2,000 per tax return, nonrefundable, and available to both graduate and undergraduate students. Only one credit can be claimed for a particular student in a tax year.