close
Share with your friends

Employer credit, family and medical leave unavailable to section 501(c)(3) organizations

Employer credit, family and medical leave

The IRS yesterday released an advance version of Notice 2018-71 as guidance—in a “question and answer” (“Q&A”) format—about the employer credit for paid family and medical leave under section 45S (added to the Code by Pub. L. No. 115-97, enacted December 22, 2017).

1000

Related content

Notice 2018-71 [PDF 115 KB] clarifies—in an example—that the Family and Medical Leave Act (FMLA) credit is unavailable to section 501(c)(3) organizations, but the notice does not address the eligibility of other section 501(c) organizations to claim the credit. 

Read general information about Notice 2018-71 in TaxNewsFlash–Exempt Organizations

Notice 2018-71 and exempt organizations

Although section 45S allows many employers to claim a credit for a percentage of wages paid to employees if qualifying criteria are met, the manner in which the statute defines certain terms precludes section 501(c)(3) organizations from claiming the credit. Specifically, Notice 2018-71 explains that because “wages” (the amount upon which the credit is based) is defined as “all remuneration for employment” under the FUTA employment tax provisions—and because employment by a section 501(c)(3) organization is not “employment” for such purposes—section 501(c)(3) organizations would not have any wages upon which to claim the credit. Notice 2018-71, Q&A 24, Ex. 2. 

KPMG observation

In light of the IRS’s rationale in concluding that section 501(c)(3) organizations are ineligible to claim the credit, it appears that other entities that enjoy a similar FUTA employment tax exception—such as the federal and state governments, political subdivisions, and instrumentalities—would also be ineligible to claim the credit. 

Notice 2018-71 does not address the eligibility of other section 501(c) organizations to claim the credit. Presumably such organizations may claim the credit if amounts they pay to employees constitute wages for FUTA employment tax purposes and all other relevant requirements are met. 

The notice also provides that leave paid by a state or local government or required by a state or local law is not taken into account for purposes of determining the credit. Notice 2018-71, Q&As 9, 21 and 26. 

 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com 

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal