Credit for Paid Family and Medical Leave (Form 8994)

40% of employees who use the FMLA of the federal government, request and take a family leave to claim that they took less time off than they needed because the break was unpaid.

Under the federal Family and Medical Leave Act, you are permitted to take up to 12 weeks of job-protected leave. The Act guarantees that you can continue working while looking after your family or attending to your medical needs.

Today, a lot of businesses and even states provide paid family and medical leave. When a business offers the same FMLA breaks as paid time off, the IRS uses Form 8994 to award tax credits.

As a result, the worker can take time off for family or health reasons. They still receive compensation, and their employment and insurance are both secure.

Paid Medical and Family Leave

The Family and Medical Leave Act was adopted by the federal government in 1993. Employers are required by this regulation to permit employees to take up to 12 weeks off from work for personal or family reasons.

Employers are required by law to maintain their insurance coverage. All while an employee is on FMLA and to protect their employment. Employers are not required by law to keep paying their employees.

There are presently state laws governing paid family medical leave in nine states and the District of Columbia (PFML). Many companies have decided to give their employees access to paid family medical leave.

The business is eligible to submit a tax credit application when they pay their yearly taxes as a result of having a paid family medical leave policy in place.

What Is the 8994 Form?

A business would submit Form 8994 to request the paid family medical leave tax credit.

To receive the credit, the form must be submitted with a business’ taxes. The form includes a list of questions that the company must respond to. They move on to the following question if they respond “yes.”

They are instructed not to file Form 8994 if they select No on the form. These are the inquiries:

  • Does your company have a documented policy that guarantees paid family or medical leave for at least two weeks? During this paid time off, is there any pay provided?
  • Does your policy pay a qualified employee at least 50% of their wages?
  • A qualifying employee paid by your company last year?
  • Did you add language for the non-interference phrase if you have an employee who is not covered by the FMLA?

Next, the form requests that you list the wages that you received throughout the tax year. Paid parental leave from S companies and partnerships is included. This number would be added by the company and reported on either Schedule K or Form 3800.

Who Is Eligible for Paid Family and Medical Leave Among Employees?

The employee must also fulfill certain requirements to be eligible for paid medical leave that the employer can claim as a tax credit.

The individual must have spent at least a year working for the qualifying employer.

Additionally, under section 414, they may not make more than 60% of the amount applicable for that year. The IRS has set a $130,000 applicable amount for 2021 and 2022.

This means that the employee must not only work for the company for at least a year but also earn no more than $78,000 annually.

Requesting Employer Credits

When filing their taxes, which are always due on April 15th, a qualifying employer should use Forms 8994 and 3800 to submit their application.

The employer may also have requested an extension, in which case they have until October 15 to do so.

Work with an employee retention credit filing provider if your tax advisor or business management has little experience with tax credits. When you submit your taxes, you should take advantage of any tax credits that are available to you.

To Claim the Tax Credits for Your Business, Use Form 8994

To attract the finest employees in a competitive employment market, it may make sense to include paid family and medical leave in a benefits package. If you provide such a benefit to qualified employees, it also offers a substantial tax credit.

Your Part Time Accountant can assist you if you require assistance with Form 8994 or have inquiries regarding additional tax advantages. To find out what tax credits your company might be eligible for, get in touch with us right away.