In the wake of Hurricane Harvey, Irma and Maria, there have been many disaster relief provisions released for taxpayers who are located in a federally declared disaster area. These areas include Florida, Georgia, Puerto Rico and 47 counties in Texas.
If your club is located in one of these areas, there are several benefits available to help your club and your club’s employees.
Nontaxable employee assistance payments
The club can provide affected employees nontaxable qualified disaster relief payments to assist with disaster-related expenses. If the payments meet the requirements, then the payments are nontaxable to the employee and thus, excludable from federal income tax, employment taxes and Form W-2 reporting.
In order for these payments to qualify, the payment must be made due to a federally declared disaster, and the payments need to pay or reimburse the employee for personal, family or living expenses incurred as a result of the disaster. These expenses can be for things such as medical care, temporary housing, transportation, residence repairs, and repair and replacement of the contents of the residence. The expenses must be reasonable, necessary and cannot be reimbursed by insurance, FEMA or other programs available. The payments are available for all employees regardless of length or type of service.
Member contributions to a private club are not tax deductible. Therefore, contributions from members to pay for these expenses cannot be deducted on the members’ individual tax return. However, clubs can set up a charity, which could benefit the community surrounding the club. For more information, please contact RSM or your club’s tax advisors.
Real property and personal property taxes potential reduction
There may be opportunities for a reduction in tax valuation and assessments for real and personal property tax if your club suffered damages as a result of the hurricane. The club and members will need to appeal or request reappraisals since the local assessors may not automatically reduce assessments after the damage occurs. Although real property tax impacts are often effective the next tax year, there is a possibility for prorated changes that may be allowed during the year of the disaster. The club should consult with RSM or their tax advisor for assistance with these situations.
Employee retention credit
Clubs that were inoperable due to a hurricane may be eligible to claim a tax credit equal to 40 percent of the wages paid to an employee (up to $6,000 of wages per employee) whose principal place of employment was in a disaster area. The credit applies to wages paid during the period the business remains inoperable, ending no later than Jan. 1, 2018. The credit is applicable regardless of whether the employee provides any services, provides services at an alternate location or provides services at the principal place of employment before substantial business operations are resumed.
In general, businesses are allowed a deduction for any loss sustained that isn’t reimbursed by insurance. However, there is a special provision regarding the timing of this deduction when the loss is due to a disaster. Although this will mainly benefit clubs which pay income tax, there is a unique disaster relief provision available that allows the taxpayer to deduct the disaster-related losses on their 2016 tax return, even though the loss didn’t occur until 2017. The club should consult with their advisor regarding which year this deduction would be more beneficial.
For individuals who sustained casualty losses, generally the individual is only entitled to a tax deduction to the extent that a) they itemize their deductions and b) the casualty loss exceeds 10 percent of their adjusted gross income. These two limitations are eliminated for losses in one of the designated disaster areas.
Postponement of filing deadlines
Federal deadlines have been extended until Jan. 31, 2018, for various tax returns and payments. This includes individual and business tax returns for taxpayers with valid extensions that run out on Oct. 16, businesses with extensions that ran out on Sept. 15, and calendar year tax-exempt organizations whose 2016 extensions run out Nov. 15, 2017.
The extension also provides relief for the Sept. 15, 2017, and Jan. 16, 2018, deadlines for making quarterly estimated tax payments. The quarterly payroll and excise tax returns, Form 941, due Oct. 31, 2017, has also been given an extended deadline of Jan. 31, 2018. There is also an automatic penalty waiver for payroll and excise tax deposits so long as the deposit is made by the extended due date.
Each state has also developed various deadlines and penalty abatements for relief for filing.
Sales and use taxes
Your club may also be eligible for various state and local tax filing relief, such as favorable sales and use tax exemptions for disaster-related purchases and repairs or refunds of sales and use tax paid on property damaged in a disaster. Some states may offer "disaster preparedness" sales tax holidays, where the club can purchase disaster-preparation equipment and supplies that are exempt from sales tax. Each state has different relief opportunities, so the club should contact RSM or their tax advisors to learn what is available to them.
Suspension of certain percentage limitations on charitable contributions
Both the club and their members may benefit from newly enacted legislation that eliminates limitations on charitable contributions that are used for relief efforts in areas impacted by the hurricanes. In order to qualify, the taxpayer must receive a contemporaneous written acknowledgement from the charity that the contribution is to be used in those efforts.
Exception to the 10 percent penalty on early withdrawal from qualified retirement plans
Generally, an individual taxpayer must pay income tax and a 10 percent penalty on early withdrawals from a retirement plan if they take distributions before the year in which they turn 59½. If your club’s employees suffered a loss while residing in an affected area, then they can benefit from newly enacted legislation, which waives the 10 percent penalty on distributions of up to $100,000. Furthermore, taxpayers who take such withdrawals have the opportunity to recognize the income over three years, and to potentially repay the amount within that same period and avoid taxes on the distribution.