Author: Rena Pirsos, XpertHR Legal Editor

The Internal Revenue Service (IRS) has granted employers affected by Hurricane Sandy extra time to file and pay federal payroll taxes along with waivers of certain penalties. It will also allow qualified disaster tax treatment of relief payments made by employers to assist employees who are victims of the disaster. Several states have also extended certain employer deadlines.

IRS Extensions and Waivers

The IRS has announced that it is granting employers and tax preparers directly affected by Hurricane Sandy, or those otherwise impacted by the storm, until November 7, 2012 to file federal payroll tax returns and make accompanying payments normally due by October 31, such as third quarter Forms 941, Employer's Quarterly Federal Tax Return.

In addition, affected employers in Connecticut, New Jersey and New York will have until February 1, 2013 to file federal returns and pay the taxes due for amounts withheld for the third and fourth quarters, which are normally due on October 31, 2012 and January 31, 2013 respectively. The IRS will abate any interest and penalties for late filing or payments that would otherwise apply. Taxpayers need not take any action to obtain this relief as it will be granted automatically to employers located in the disaster areas.

The IRS is also waiving failure-to-deposit penalties for federal payroll tax deposits normally due on or after the disaster area start date and before November 26, 2012, if the deposits are made by November 26, 2012.

So far, the IRS filing and payment relief applies to the following localities:

  • In Connecticut, starting October 27, 2012: Fairfield, Middlesex, New Haven and New London Counties and the Mashantucket Pequot and Mohegan Tribal Nations located within New London County;
  • In New Jersey, starting October 26, 2012: Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, Somerset and Union Counties; and
  • In New York, starting October 27, 2012: Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester Counties.

If an employer or tax practitioner receives a penalty notice for any of these designated periods, it can contact the IRS at the number on the notice to request penalty abatement due to reasonable cause on account of the storm.

The IRS also says it will work with any taxpayer located outside the disaster area whose books, records or tax preparers are located in the areas affected by the hurricane and that it expects to grant additional filing and payment relief as additional qualifying disaster declarations are issued by the Federal Emergency Management Agency (FEMA).

IR-2012-82, Oct. 31, 2012; IRS e-News for Tax Professionals, Issue Number 2012-44, Nov. 2, 2012.

Tax Treatment of Employer Relief Payments

The IRS has also announced that because Hurricane Sandy is considered a designated qualified disaster for federal tax purposes, qualified disaster relief payments made to employees by their employers can be excluded from the employees' taxable income. Such payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance, as well as expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent they were not covered by insurance.

The designation also means that employer-sponsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without losing their tax-exempt status.

IRS e-News for Tax Professionals, Issue Number 2012-44, Nov. 2, 2012.

State Relief Efforts

As of November 2, 2012, the following states have granted relief to employers affected by the storm; additional states may do the same in the coming days:

California: The October 31, 2012 deadline for filing reports of unclaimed wages is extended to November 13, 2012. State Controller, Unclaimed Property Division, Notice to Holders, Oct. 2012.

Connecticut, Iowa, New Jersey, Rhode Island: The October 31, 2012 deadline for filing returns and paying amounts withheld for state income tax is extended to November 7, 2012. Connecticut Department of Revenue Services, News Release, Oct. 30, 2012; Iowa Department of Revenue, News Release, Nov. 1, 2012; New Jersey Office of the Governor, News Release, Oct. 31, 2012; Rhode Island Division of Taxation, Advisory 2012-29, Oct. 31, 2012.

New York: Deadlines for payments of withheld tax using Form NYS-1, Return of Tax Withheld, and for filing protective refund claims of the Metropolitan Commuter Transportation Mobility tax (MCTMT) have been extended. For details, See Hurricane Sandy: Tax Deadline Extensions for New York Employers.

Pennsylvania: The October 31, 2012 deadline for filing returns and paying amounts withheld for state income tax and for state unemployment compensation tax filings is extended to November 7, 2012. Pennsylvania Department of Labor and Industry, News Release, Oct. 31, 2012.

Virginia: Employers that normally file returns and make payments of withheld state income taxes by October 31, 2012 may do so by November 9, 2012 without incurring penalties. Employers that pay by electronic funds transfer (EFT) are included in the penalty waiver. The state tax department may grant additional penalty waivers in other cases of hardship. Virginia Department of Taxation, Tax Bulletin 12-7, Oct. 30, 2012.

Additional Resources

Payroll > Depositing and Reporting Withheld Taxes
Payroll > Payment of Wages > California > Unclaimed Wages
Unemployment Insurance Tax > Pennsylvania > Quarterly Reporting Requirements