S. 400 — Paid Family and Medical Leave Tax Credit Extension and Enhancement Act

This section enhances the paid family and medical leave tax credit under section 45S of the Internal Revenue Code by (1) allowing eligible employers to elect a credit equal to the applicable percentage of either wages paid to qualifying employees on family and medical leave or premiums paid on an insurance policy providing such leave (previously, credit only on wages), with the insurance rate determined without regard to whether leave was taken; (2) revising the aggregation rule to treat controlled groups as a single employer unless a substantial and legitimate business reason exists for separate written leave policies (previously, no exception); (3) requiring state- or local government-paid leave to be counted toward the employer's leave provided but excluding it from the credit amount; (4) expanding the qualifying employee definition to include those employed for at least 6 months (from 1 year) at employer election, with compensation determined on an annualized pro-rata basis for part-time employees, who must also customarily work at least 20 hours per week; and (5) striking the provision's termination date. The section further prevents deduction of premiums eligible for the credit under new sec. 45S(a)(1)(B), requires the Small Business Administration's district offices and resource partners—small business development centers (15 U.S.C. 648), women's business centers (15 U.S.C. 656), Service Corps of Retired Executives chapters (15 U.S.C. 637(b)(1)(B)), and Veteran Business Outreach Centers (15 U.S.C. 657b)—along with the Internal Revenue Service to conduct targeted outreach on the credit (including assistance developing written leave policies), and applies these changes to taxable years beginning after enactment. (As background, the credit allows eligible employers up to a 25% credit—12.5% for wages exceeding specified thresholds—on wages or insurance costs for paid family and medical leave provided under a written policy; these changes broaden eligibility, reduce administrative burdens, and promote awareness among small businesses.)