As a result of COVID-19 being considered a qualified disaster for Federal income tax purposes, there are a number of tax-advantaged alternatives available for employers and employees regarding charitable contributions, assistance and support. We have outlined four below for your review.
We are happy to assist you and your organization in discussing these and your specific situation in greater detail, including implementation.
- Employees of a section 501(c)(3) tax-exempt hospital can make post-tax contributions to the organization, and this can be done directly through payroll. In this situation, the organization receives cash, and the individual receives a charitable contribution which may be deductible on their Form 1040, Schedule A as an itemized deduction. An individual may realize Federal income tax savings up to an amount equal to 37% of the amount contributed. State individual income tax savings may also be realized. Keep in mind, however, that an individual’s aggregate charitable contributions are limited to 60% of an individual’s adjusted gross income (AGI).
- Employer-sponsored leave-donation programs allow employees to forgo their accrued paid leave, such as paid time off (PTO), vacation, or sick leave, in exchange for cash donations that the employer makes to charitable organizations. Presumably, the organization uses these funds for disaster relief (e.g., COVID-19). Generally, employees that forgo the accrued paid leave do not recognize the amount as income for Federal Form W-2 purposes; and subsequently do not receive a charitable contribution deduction. This assumes that there is a qualified disaster (e.g., COVID-19), and a written plan or summary of guidelines that satisfy certain requirements is recommended.
- Employer-sponsored leave-sharing programs allow employees to donate some of their accrued paid leave time, such as paid time off (PTO), vacation, or sick leave, for the benefit of other employees who are in need of additional paid leave (e.g., due to getting COVID-19 or needing to be home due to child care issues). Generally, employees who forgo the accrued paid leave do not recognize the amount as income for Federal Form W-2 purposes. However, in this situation, the recipient employees do recognize the amount as income for Federal Form W-2 purposes. This assumes that there is a qualified disaster (e.g., COVID-19), and a written plan or summary of guidelines that satisfy certain requirements is recommended.
- IRS Code Section 139 allows employers to provide tax-free monetary assistance to their employees. Generally, the assistance only needs to be “reasonable and necessary” and must not be for an expense reimbursable by an employee’s insurance. Examples include (1) child care for workers whose normal source of child care is unavailable due to COVID-19; (2) Telecommuting costs such as printers, office supplies and even increased utility costs that are related to COVID-19 and (3) medical and funeral expenses of an employee’s family as a result of COVID-19. The amount of assistance to employees is not considered income for Federal Form W-2 purposes. This Code Section assumes there is a qualified disaster (e.g., COVID-19). Written summary guidelines are recommended.
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Healthcare Services Group