The IRS recently announced special tax relief for leave-based donation programs set up by employers to assist victims of Hurricane Harvey and Tropical Storm Harvey.
Under a leave-based donation program, an employer can allow its employees to forgo their vacation, sick, or personal time off in exchange for cash payments made by the employer to charitable organizations. Under IRS regulations, leave-based charitable donations are ordinarily included in the donating employee's income. In addition, the opportunity to elect such contributions raises the concern that eligible employees might be taxed on income that could have been donated because the ability to make the contribution triggers "constructive receipt."
The new IRS guidance addresses both concerns:
Such payments don't need to be included in Box 1, 3, or 5 of the employee's Form W-2.
Employers cannot claim a charitable deduction for the value of the forgone leave. However, they will be permitted to deduct the contributions as trade or business expenses without regard to the charitable contribution restrictions under the tax code.
This guidance closely resembles the relief for leave-based donation programs that the IRS has issued after other recent disasters, including last year's severe storms and flooding in Louisiana and Hurricane Matthew.
If you need more information about leave-based donation programs, consult with your tax or employee benefits advisors.
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