Qualified disaster relief through charitable organizations

Recent disasters, including Hurricanes Helene and Milton, have prompted many organizations and individuals to explore ways to provide support to members of the impacted communities. While businesses can provide assistance directly to their own employees impacted by a qualified disaster (under limitations discussed below), providing assistance through a new or existing tax-exempt charitable organization can offer added benefits, including charitable contribution deductions for donors and the ability to consolidate and streamline response efforts for maximum impact. 

Qualified disasters

A “qualified disaster” is typically a federally declared disaster found on the Federal Emergency Management Agency (FEMA) website. Qualified disaster relief payments are excluded from the recipient’s taxable income and are not subject to employment tax. These include payments from any source (including charities, private foundations, employers, and related organizations) if made for the following reasonable and necessary expenses incurred because of a qualified disaster:

• Personal, family, living, or funeral expenses;
• Expenses incurred for the repair or rehabilitation of a personal residence; or
• Expenses incurred for the repair or replacement of the contents of a personal residence.
  

However, qualified disaster relief payments do not include payments for expenses otherwise paid for by insurance or other reimbursements, or income replacement payments, such as payments of lost wages, lost business income or unemployment compensation.

Types of assistance

Charitable organizations, including public charities, private foundations and donor advised funds, may provide financial or in-kind assistance to individuals and businesses in the event of a qualified disaster. IRS Pub. 3833, Disaster Relief, provides practical and helpful guidelines for such assistance.

Individual assistance could include basic necessities like food, clothing, housing, transportation, or medical care. Whether the aid is appropriate depends upon the recipient’s needs and resources. Immediate relief may be necessary in the event of an emergency, regardless of one’s financial resources. For example, by providing people with food and supplies in the immediate aftermath of a hurricane. Longer-term assistance may be rendered to individuals that have a demonstrable financial need or distress.

Assistance to businesses is permissible if doing so is a reasonable means of accomplishing the charitable organization’s exempt purpose and any private benefit is incidental to the accomplishment of that purpose.

Employer-sponsored assistance programs

The following table summarizes the different options available to businesses, employees, vendors, and other third parties to contribute to an employee relief fund while meeting the following objectives:

• Excluding the assistance from the employee’s taxable income,
• Providing the donor with a charitable contribution deduction, and
• Excluding the contributions from the company’s income.

How RSM can help

RSM’s Exempt Organization tax practice can assist your existing organization in reviewing, modifying, or structuring its disaster relief program to address the needs of your grantees and community. It can also assist you with establishing a new disaster relief organization.