Income Tax Benefits For Family Leave

Section 2 of the bill establishes leave savings accounts. A leave savings account is an account with a financial institution for which the individual uses money to pay for any expense while he or she is on eligible leave, which includes:

• The birth of a child of the individual and in order to care for the child;
• The placement of a child with the individual for adoption or foster care;
• Caring for a spouse, child, or parent of the individual if the spouse, child, or parent has a serious health condition;
• A serious health condition that makes the individual unable to perform the functions of the position of the individual; or
• Any qualifying exigency, as determined by the United States secretary of labor, arising out of the fact that a spouse, child, or parent of the individual is on covered active duty, or has been notified of an impending call or order to covered active duty, in the United States armed forces.

An individual may annually contribute up to $5,000 of state pretax wages to a leave savings account. Employers may also make a matching contribution to an employee's leave savings account. The department of revenue is required to establish a form about a leave savings account, and the individual must annually file this form to be eligible for the tax benefit.

Sections 3 and 4 allow an employee and an employer to claim a state income tax deduction for amounts they contribute to the employee's leave savings account. Section 3 also allows a taxpayer to deduct any interest or other income earned on the investment during the taxable year from their leave savings account.

Regardless of how the money is deposited in the leave savings account, if an individual uses money in the account for an unauthorized purpose, then the money is subject to recapture in the year it is withdrawn and to a penalty equal to 10% of the amount recaptured.

Section 5 creates an income tax credit for an employer that pays an employee for leave that is between 6 and 12 weeks long for one of the following reasons:

• The birth of a child of the employee and in order to care for the child;
• Placement of a child with the employee for adoption or foster care;
• Caring for a spouse, child, or parent of the employee if the spouse, child, or parent has a serious health condition;
• A serious health condition that makes the employee unable to perform the functions of the position of the employee; or
• Any qualifying exigency, as determined by the United States secretary of labor, arising out of the fact that a spouse, child, or parent of the employee is on covered active duty, or has been notified of an impending call or order to covered active duty, in the United States armed forces.

For employers with fewer than 50 employees, the credit is equal to 50% of the amount paid, and for employers with 50 or more employees it is equal to 25% of the amount paid. The credit is not refundable, but it may be carried forward up to 5 years.

(Note: This summary applies to this bill as introduced.)