IRS adds leave-based donation to list of Harvey relief
TAX ALERT |
In Notice 2017-48, the IRS added to the relief for victims of Hurricane Harvey by providing common leave-based donation as with previous disaster situations. The guidance provides that, “employees can elect to forgo vacation, sick or personal leave in exchange for cash payments that the employer makes to charitable organizations.” As long as the payments are made to section 170(c) organizations for Harvey relief and paid by Jan. 1, 2019, the amount of the cash payments will not be subject to income or payroll taxes and the employer is allowed a deduction under section 162.
Prior guidance still in effect
It should be noted that this relief is different to that provided in Notice 2006-59, which remains in effect. Notice 2006-59 applies to employers who have established leave-based donation programs for major disasters. If the requirements provided in that guidance are met, employees can donate their leave time to an employer-sponsored leave bank that the employer can pay to other employees and the recipient of the leave is taxed rather than the donor of the time. Under the provisions of this notice, then, the employer can make the payment directly to other employees affected by the disaster rather than to a qualified charitable organization.
Provisions common to both notices
Further, it is important to understand that both of these notices apply only to the donation of leave-based time. Typically, this is paid vacation, personal and sick time that the employer allows under a standard policy. Neither notice provides relief for employees to donate a portion of regular pay or anything other than leave-based pay. While the guidance provides that the IRS will not assert that a donor of leave-based time has taxable wages, employers should be careful to document that the requirements of either notice are met to support this treatment.