FAQ: Employer leave-based donation programs for COVID-19 relief, and their tax implications
Earlier this year, the IRS released Notice 2020-46, providing guidance for employees and employers establishing and participating in leave-based donation programs that provide assistance to victims of the COVID-19 pandemic. Read on for answers to frequently asked questions about this type of program, as well as federal income and employment tax implications for participants.
Leave-based donation programs originated in 1997, when Congress authorized federal agencies to create plans allowing federal employees to donate unused leave to fellow employees who had been impacted by a specified major disaster. The IRS later ruled that non-governmental organizations were also eligible to create such plans. In 2017, after Hurricane Harvey, the IRS expanded the plans by allowing employers to use the donated leave to make cash payments to qualified charitable organizations assisting disaster victims.
Leave-based donation programs are optional and at the discretion of the employer.
Cash payments for the employee’s donated leave will not be treated as wages or compensation to the employee or otherwise included in their gross income. It follows that the employee is thus not permitted to claim a charitable contribution deduction on their personal income tax return for the value of the donated leave.
Employers should not include the value of the donated leave on the employee’s W-2.
In the current economic environment, employees as well as employers are looking for innovative ways to help their co-workers. Before starting a leave-based donation program, it is important to understand the tax implications that such programs could generate.
For more information, view the full IRS Notice 2020-46.
Lori Rothe Yokobosky, CPA, Partner, Exempt Organizations Tax Services Practice Leader
973.403.6940
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