IRS Permits Tax-Exempt Leave-Based Donations to Aid Hurricane Harvey Relief Effort
Author: Robert S. Teachout, XpertHR Legal Editor
September 7, 2017
In response to the devastation caused by Hurricane Harvey and Tropical Storm Harvey, the IRS has announced that it will permit employers to set up tax-favored leave-based donation programs to aid victims of these storms. The IRS has permitted employers to offer such programs only a few times in the past - after the September 11, 2001, attacks, Hurricane Katrina in 2005, Hurricane Sandy in 2012 and the Ebola crisis in 2014.
Under a leave-based donation program, employees can donate some of their accrued vacation, sick or personal leave in exchange for cash payments their employer makes to qualified charitable organizations. According to the IRS's announcement, the value of the leave donated by employees for the Harvey-related crisis will be excluded from their taxable wages. Therefore, the donations will not be subject to withholding for taxes including federal income, Social Security and Medicare, and federal unemployment insurance.
However, the exclusion only applies if the donations are:
- Made to qualifying tax-exempt organizations (under IRC § 170(c)) providing relief to victims of Hurricane Harvey and Tropical Storm Harvey; and
- Paid to the organizations before January 1, 2019.
Employees who elect to donate leave may not claim the value of the leave as a charitable deduction.
The IRS says employers should not report qualifying leave-based donations on employees' Forms W-2, Wage and Tax Statement, in boxes 1, 3 or 5. Employers may deduct those cash payments as wages under IRC § 162.
The IRS also offered advice to taxpayers on how to prepare in the event of a hurricane, flood, fire or other disaster. For example, an employer could make electronic duplicates of key documents, such as tax returns and bank statements. The agency also suggests photographing or videotaping the contents of an office or other workplace, especially high-value items, ahead of time to document them and make it easier to file for insurance and tax benefits after the disaster strikes. The IRS provides a toll-free number (866-562-5227) that an employer can call to speak with an IRS specialist trained to handle disaster-related issues.