New Federal tax laws in 2018 bring about a number of important changes to the tax credits available to business owners. Here are several that you should be mindful of.
Employer Credit for Paid Family or Medical Leave
While under the previous tax code, no credit was provided to employers for compensation paid to employees while on leave, the new tax code allows businesses to claim a general business credit equal to 12.5% of the amount of wages paid to qualifying employees during any period of family and medical leave if the payment rate is 50% of the wages the employee is normally paid. This credit is applicable for wages paid in tax years beginning after Dec. 31, 2017, but not after Dec. 31, 2019. Additionally, the credit is increased by 0.25 percentage points, not to exceed 25%, for each percentage point by which the rate of payment exceeds 50%. In order to qualify for the credit, at least two weeks of annual paid family and medical leave must be given to all qualifying full-time employees, and all less-than-full-time qualifying employees must be given a commensurate amount of leave on a pro rata basis.
Orphan Drug Credit
Under the old tax code, drug manufacturers could claim a credit equal to 50% of qualified clinical testing expenses for drugs for rare conditions or diseases under Sec. 45C. Under the new law, this credit has been reduced to 25% for amounts paid or incurred after December 31, 2017.
Under Sec. 47 of the old tax code, a 20% credit was provided with respect to a certified historic structure for qualified rehabilitation expenditures. Certified historic structures may include any building listed in the National Register or located in a registered historic district and certified as being of historic significance to the district by the Secretary of the Interior to the Secretary of the Treasury. The new tax code has changed when the credit may be claimed and provides a transition rule.
Taxpayers are now required to take the 20% credit spread out over a span of five years, starting in the year the building was placed into service. In addition, the 10% rehabilitation credit for pre-1936 buildings has been eliminated. Owners of either a certified historic structure or a pre-1936 building may use the prior law, provided that the taxpayer owned or leased the building on January 1, 2018 and continues to do so after that date, and the 24- or 60-month period (selected by the taxpayer) for the substantial rehabilitation test begins by June 20, 2018.
If you are concerned about how these changes to the tax credits available may impact your business, don’t hesitate to reach out to us at Sousa & Weber, LLP. Our tax experts will help you navigate the often-confusing changes to the tax code so you can rest easy knowing your taxes are in good hands.