A tax credit supporting the provision of paid leave access to more individuals in America is receiving increased attention on Capitol Hill. The credit, which allows employers to recoup as much as 25% of the costs associated with providing their workers with paid leave, is set to expire in 2025. However, Senators Angus King (I-Maine) and Deb Fischer (R-Neb.) have introduced bill S. 3680 this month that aims to make the credit permanent and further accessible to businesses.
This latest development follows the House bipartisan paid leave working group’s release of the legislative recommendations, which includes the expansion of the tax benefit as a central pillar that can gain Congressional approval. This effort by members across both parties in Congress signifies momentum towards a federal paid leave legislation, despite the continued hurdles faced on Capitol Hill.
Making It Permanent
Senator Fischer, a long-time advocate for employer tax benefits related to paid leave, was pivotal in including the Employer Tax Credit for Paid Family and Medical Leave inclusion in the Republican-back tax law enacted in 2017. The credit, launched as a two-year pilot, allows employers to claim a 12.5% tax credit if they offer paid leave at 50% of workers’ wages, and a 25% credit for paid leave with 100% wage replacement. This tax credit has seen two renewals, but the coming expiration date in 2025 has made employers hesitant to participate.
King and Fischer’s bill, which is endorsed by the American Institute of Certified Public Accountants, proposes to make the tax credit permanent, adding a degree of certainty for businesses considering offering paid leave.
Eligibility Expansion
The new legislation also seeks to adapt to the changing landscape of paid leave since the tax credit’s inception nearly six years ago. S. 3680 aims to expand employer eligibility for the tax credit in two key ways. Currently, if employers are required by some states to provide paid leave but not by others, they are disqualified from the credit. The new bill would allow these businesses to qualify for the credit, provided they offer paid leave in states where it’s not mandated. Furthermore, the legislation would enable employers to set a 20-hour work threshold for eligibility for the paid leave program.
Price Tag Problems
Despite the generally positive response, there are concerns that the legislation’s expansion of employer eligibility could increase the cost of the tax credit. The Joint Committee on Taxation hasn’t yet scored the legislation, but the Congressional Research Service reports that the cost of the credit has seen continuous decline due to more states setting up their own paid leave programs.
In a statement regarding the legislation, Dawn Huckelbridge, executive director of the Paid Leave for All Campaign, stressed the need for a comprehensive, universal paid leave program over the voluntary tax credit incentive, as this approach “has not substantially expanded access.”
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