In light of the devastating hurricanes that recently impacted the U.S. and the Caribbean, the IRS has announced special relief that provides favorable tax treatment for leave-based donations to aid victims of Hurricanes Harvey and Irma.
A leave-based donation program is one in which employees forgo vacation, sick, or personal leave in exchange for a cash payment by the employer to a charitable organization.
Under the special relief provided by the IRS, leave that is donated by an employee for Hurricane Harvey or Hurricane Irma relief is not included in the income or wages of the employee (thus, the amount is not subject to income or payroll tax withholding). However, the employees are not allowed to claim a charitable contribution deduction for the value of the forgone leave that is excluded from their compensation as a result of this special relief provision. The relief provided by the IRS further allows the employer to deduct the payments it makes to charities in connection with the forgone leave as business expenses, resulting in the payments not being subject to the charitable contribution deduction limits normally applicable to charitable contributions.
In order to be eligible for the special tax treatment described above, the payment made by the employer in connection with the forgone leave must be made before January 1, 2019 to a qualifying charity for the relief of victims of Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, or Tropical Storm Irma.
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If you are a BMWL client and would like assistance regarding leave-based donations or other special hurricane tax relief matters, we would be glad to help! It is our pleasure and privilege to serve you.