26 U.S.C. § 45S — Employer credit for paid family and medical leave

(a) Establishment of credit (1) For the general business credit, an "eligible employer" chooses one of two ways to figure the "paid family and medical leave credit": (A) the "applicable percentage" of wages paid to "qualifying employees" while they're on family and medical leave; or (B) if the employer instead has an in-force insurance policy covering paid family and medical leave, the applicable percentage of the premiums paid on that policy during the year. (2) "Applicable percentage" starts at 12.5 percent. For every percentage point the leave-payment rate (from (c)(1)(B)) goes above 50 percent, add 0.25 percentage points — but the total never goes above 25 percent. (3) When figuring the applicable percentage for the insurance-premium option in (1)(B), use the policy's payment rate regardless of whether any employee actually took leave that year. (b) Limitation (1) The wages counted under (a) for any one employee can't exceed that employee's normal hourly wage, times the number of hours (or fraction of an hour) of leave taken. (2) For an employee not paid hourly, the Secretary's regulations convert their pay to an hourly rate. (3) No more than 12 weeks of leave per employee per year can count toward the credit. (c) Eligible employer (1) An employer is "eligible" if it has a written policy meeting these rules: (A) The policy gives (i) a full-time qualifying employee at least 2 weeks of paid family and medical leave a year, and (ii) a part-time qualifying employee a proportional amount — figured by comparing the hours that part-time employee is expected to work each week to the hours a comparable full-time employee is expected to work. (B) The policy pays at least 50 percent of the employee's normal wages during the leave. (2) Special rule for employers covering employees not otherwise covered by the federal Family and Medical Leave Act (called "added employees"): (A) Such an "added employer" only qualifies if its written policy also promises it (i) won't interfere with or punish anyone for using or trying to use the policy's leave rights, and (ii) won't fire or discriminate against anyone for opposing a practice the policy forbids. (B) "Added employee" means a qualifying employee not covered by Title I of the Family and Medical Leave Act. "Added employer" means an otherwise-eligible employer — covered by that Title I or not — that offers paid leave to added employees. (3) Aggregation rule: Related companies treated as one employer under section 414(b) and (c) are normally combined into a single employer here too — except a company can avoid being combined if it proves to the Secretary it has "a substantial and legitimate business reason" for not having a qualifying written policy. That reason can't be things like running a separate line of business, paying different wage rates or job categories, or following state or local family-leave laws — though it can include how a common-law employer groups its employees. (4) Leave paid or required by a state or local government counts toward whether the employer meets the paid-leave requirement, but it does not count toward the dollar amount of the credit itself. (5) No inference: Nothing here creates a new penalty for not having a qualifying policy — the only consequence is losing eligibility for the credit, or having to pay back a credit already claimed. (d) Qualifying employees A "qualifying employee" is someone (as the Fair Labor Standards Act defines "employee") who: (1) has worked for the employer at least 1 year (or, if the employer chooses, at least 6 months); (2) earned, annualized, no more than 60 percent of the compensation limit in section 414(q)(1)(B)(i) for the year before; and (3) usually works at least 20 hours a week. (e) Family and medical leave (1) Except as (2) says, "family and medical leave" means leave for the reasons listed in section 102(a)(1)(A) through (E), or 102(a)(3), of the Family and Medical Leave Act — whether the employer gives that leave because federal law requires it or just as its own policy. (2) But paid leave the employer calls vacation, personal leave, or medical or sick leave doesn't count as family and medical leave here, unless it's specifically for one of those (1) reasons. (3) "Vacation leave," "personal leave," and "medical or sick leave" mean what section 102(d)(2) of the Family and Medical Leave Act says they mean. (f) Determinations made by Secretary of Treasury The Secretary decides whether an employer or employee meets the (c) or (d) requirements, based on information the employer provides. (g) Wages "Wages" here means what section 3306(b) says, without that section's dollar cap — and it doesn't include any pay already counted toward a different credit in this same subpart. (h) Election to have credit not apply (1) A taxpayer can choose not to use this credit for any tax year. (2) Rules like section 51(j)(2) and (3) apply to that choice.