Today, I’m talking about…
Let us talk about a new credit for your employees. This lesson only apply to those business owners that actually have employees. In 2018, if you have an employee and you pay them for either a family or medical exempts, you can get it in your credit. Ow, that credit has to meet, the payment has to meet certain requirements. You have to have a written policy in place to adopt this, to make this payment. The person you’re paying must be a qualified employee. And a qualified employee is someone, according to the Fair Labor Standards Act, who has been employed for at least one year and has compensation of no more than $72,000 in 2018. It’s 60% of a highly compensated individual. The IRS considers making $120,000 as highly compensated. If you make 60% of that, which is $72,000, then you have to make less than that to qualify for this. The employee credit must, cannot be more than 12 weeks. And also, you have to pay at least 50% of the amount of your employee’s wages. For example, if your employee goes on medical leave and you pay them $1,000 a month, you have to get them at least $500 to qualify for this credit.
Next, we’ll take a look at some examples, so this makes more sense for you. Let’s take a look at ABC Co. ABC Co has an employee called Aaron Smith. He receives a weekly salary of $950, but he wants to take six weeks off because he has a very seriously ill mom. ABC says, “Well, go ahead and take the six weeks off. We can pay 75% of your wages while you’re gone.” Let’s see how we compute ABC’s credit. First of all, they’re going to pay 75% of his wages. That’s above the 50%. So, that’s good. Anything below 50%, it’s no. You can’t take the credit. It has to be at least 50%, so 75% is good.
The weekly benefit amount is $950. Well, if we annualize $950, it’s not going to be more than $72,000. That’s only $49,400, so we’re still good. We’re within the limits there. Number of weeks on paid leave is six. Well, if he did more than 12, you he can only take the credit for 12 weeks. We’re still within the limits of the credit here. We do the calculations. First of all, we want to have a minimum percentage test. So, yes, he passed the minimum percentage test, which is it’s 75. So, because it’s 75, the minimum percentage you’ll get is 12.5%. Then, every single, then you get 25 points above the 75. So, because he’s above the 50, he gets 18.75 because it’s marked up because he paid more than the 50%. That’s the markup based on over the 50%. The annual salary is… So, we’ve done the salary test. It’s less than $72,000, so we’re good. He’s below the max number of weeks. He’s paid $5,700, so he gets 18.75% of 5,700 as a credit. Next, we’ll see how this affects his tax liability.
So, I’m making the assumptions that ABC paid $25,000 in wages and that he made $25,000 in net income from his S4. He had $50,000 of income so he gets the qualified business deduction of $5,000, and then his tax was $2,968. That’s the taxables he’ll pay. But you see here, because of that business credit, he gets that $1,068. His tax actually goes down to $1,899.25. When we scroll up, we can see the sum and the difference. He saves $1,068 in taxes ’cause it’s a credit, a direct credit out of how much you have paid, just because of he had, he adopted a policy, a formal policy of paying his employees when they’re off. Now, if he was going to do that anyway, but he didn’t have a formal policy, he wouldn’t have been able take the credit. Just, even just doing those little things, but things you would have done makes a big difference.
Go ahead. I do have templates of how you can write the written policies so it’s according to the rule and if you have an employee that turns up sick or is going to have a baby, going to have an ill mother, this is a way you can compensate them and still get some kind of benefit out of it.
You can get the free lessons and free template by going to bizexceletemplates.com.
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