IRS Provides Relief for Employer Leave-Based Donations
On the heels of Hurricane Harvey, on September 5, 2017, the Internal Revenue Service (“IRS”) issued Notice 2017-48 and News Release 2017-143 which both address tax issues associated with this type of assistance.
IRS Notice 2017-48
IRS Notice 2017-48 provides guidance related to leave-based donation programs that exist to aid victims of Hurricane Harvey and Tropical Storm Harvey.
Employers have the ability to establish, and have been implementing, leave-based donation programs whereby employees elect to forgo vacation, sick or personal leave time in exchange for cash donations to an Internal Revenue Code (“IRC”) §170(c) organization that provides relief to qualified disaster victims. Under these types of programs, employees can donate their vacation, sick or personal leave time back to their employer. The Notice provides that this donated accrued and unused vacation, sick or personal leave time donated by the employees does not constitute taxable wages or income to the individual making the donation and thus not includable in the employee’s Form W-2 as taxable wages.
The IRS states in the Notice that, in order for the donation of time to be excluded from an employee’s gross income, the payments by the employer must be made (1) to an IRC §170(c) organization specifically for the relief of victims of Hurricane Harvey and Tropical Storm Harvey; and (2) before January 1, 2019.
Following the donation of time, employers may make cash donations, on behalf of employees that have donated their time, to charitable organizations and deduct these payments as charitable contributions under IRC §170 as opposed to a trade or business expense under IRC §162. Since the donated time is not includable in an employee’s gross income, the donation by the employee is not deductible as a charitable contribution on an individual basis. It is also important to note that the donated leave or a check for the value of the donated leave will not be considered taxable income to the qualified disaster victims who are the recipients of this type of donation.
Conclusion
The natural disasters that have hit the United States over the past weeks have created billions of dollars in damages and have affected millions of people. The special relief program available to individuals allows them to donate and help support the victims of these natural disasters. The program outlined in the Notice is similar to those implemented by the IRS following other events such as Hurricane Katrina in 2005 and Hurricane Sandy in 2012.
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A copy of IRS Notice 2017-48 and News Release 2017-143 may both be accessed at the healthcare services section of our Firm’s Website.
