Employer Credit for Paid Family and Medical Leave: Form 8994

Form 8994

Form 8994

Is the Employer Credit for Paid Family and Medical Leave Worth it for Venture Backed Startups? **NO.  While many startups have employees who go on maternity/sick/COVID leave, the vast majority already have paid leave plans in place and exceptionally few meet the requirement that that employee was paid less than $78,000 in 2020.  Across the 500+ startups we worked with in 2020, none were eligible for the Employer Credit for Paid Family and Medical Leave.

Form 8994 - All you need to know

What is the employer credit for paid family and medical leave?

This is a federal tax credit offered by the IRS that is available to startups who paid wages to their employees while they were on family and/or sick leave.  It is designed to reimburse employers for employees who fall sick, allowing them to retain their employment without causing as much burden to the employer.

Which startups are eligible to claim the Employer Credit for Paid Family & Medical Leave?

In order to claim the credit, startups must have an official written policy in place that meets certain requirements, including:

  • Offering >2 Weeks of Paid Family & Medical Leave for qualifying employees.
  • A stipulation that the wages paid while on leave are at least >50% of the teammates usual wage.
  • “Non-Interference” language if your startup employed at least one qualifying employee who was not covered by the Family and Medical Leave Act (FMLA).

Who is a Qualifying Employee for Paid Family & Medical Leave?

In general a qualifying employee is: 

  • Has worked for the startup for >1 year, AND
  • Made less than $78,000 in 2020 

What qualifies as a leave of absence?

There are many qualifying leaves of absence, but the most common are:

  • Maternity/Paternity leave
  • Sick leave for a serious health condition 
  • Hospice leave (to provide for an immediate family member with a serious health condition)

What if a startup already provides Paid Time Off (PTO) and/or Sick Leave?

If an employer already provides PTO or sick leave, or receives State/Local funding for that leave, that paid leave is not considered family and medical leave and wont be taken into consideration for the credit.  In other words, if your employee took sick leave for a COVID related illness, the startup cannot “double dip” and take the Employer Credit for Paid Family and Medical Leave.

How much Employer Credit for Paid Family and Medical Leave will my startup Receive?

The credit is a function of how much was paid to the employee while on leave, with a maximum of 3 months.  The percentage starts at 12% and caps at 25%.  If your employee was paid less than $78,000 in salary in 2020, the startup would receive up to $19,500 in Employer Credits for Paid Family and Medical Leave.

How Do I Apply for the Employer Credit for Paid Family and Medical Leave?

You can apply for the Employer Credit for Paid Family and Medical Leave on form 8994 and 3800, which is a part of the 1120 C-Corporation Income Tax Return, due 4/15 every year and can be extended to 10/15 every year.

Where Can I find More information on the Employer Credit for Paid Family and Medical Leave?

If you would like more information on the employer credit for paid family and medical leave, you can check out the Form 8994 section on the IRS website here.

The Best Funded Startups Trust Kruze

$5.5B+ in Funding Icon

$5.5B+ in Funding

Our clients have secured over five billion dollars in seed and venture funding; close to a billion in the past year alone. Top tier VCs trust our clients’ books, and Kruze knows how to prepare startups’ financials for VC due diligence. Our clients know that they’ll be ready for their next round.

Successful Exits Every Month Icon

Successful Exits Every Month

On average, one to two of our clients are acquired every month. Our team has experience producing accounting and tax due diligence requests for the biggest public companies. Every month we help founders navigate the most important transaction of their life.

$30 million in Cash Burn Saved Icon

$30 million in Cash Burn Saved

Our clients are saving over $10 million in cash expenses - per year - from our tax credit work. Our startup tax experts know how to help unprofitable startups use tax credits to reduce their burn. Hundreds of funded startups trust Kruze to deliver the right advice, at a reasonable price.

Contact Us for a Free Consultation

Looks good!
Please provide your full name
Looks good!
Please provide company name
Looks good!
Please provide valid phone number
Looks good!
Please provide valid email
Please enter a message.
Looks good!
  call us
Table of contents