The IRS has announced that eligible employers who provide paid family and medical leave to their employees may qualify for a new business credit for tax years 2018 and 2019.

In addition, eligible employers who set up qualifying paid family leave programs or amend existing programs by Dec. 31, 2018, will be eligible to claim the employer credit for paid family and medical leave, retroactive to the beginning of the employer’s 2018 tax year, for qualifying leave already provided.

Only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit. Generally, for the 2018 tax year, the employee’s 2017 compensation from the employer must have been $72,000 or less.

The credit is an amount equal to the “applicable percentage” of the amount of wages paid to qualifying employees during any period in which the employees are on family and medical leave. The “applicable percentage” starts at 12.5 percent and is increased by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50 percent, up to a maximum of 25 percent.

The amount of family and medical leave that may be taken into account with respect to any qualifying employee for any taxable year may not exceed 12 weeks.