“Because Hurricane Sandy has been designated a qualified disaster for U.S. federal tax purposes, certain payments made by employers and others to assist disaster victims will be considered qualified disaster relief payments and thus can be excluded from taxable income.” (Proskauer)
Employers and small business owners who help victims of Hurricane Sandy deserve a break, says the Internal Revenue Service. A tax break, that is.
Here are three ways you can qualify:
1. Provide direct assistance to employees affected by the storm:
“The Internal Revenue Code (Code) allows an employer to provide tax-free disaster relief to its employees, and the employer may still take a tax deduction for these payments, if the payments constitute qualified disaster relief payments. To qualify for the tax-free treatment, Code Section 139 defines a ‘qualified disaster relief payment” to mean any amount paid to or for the benefit of an individual, including payments to employees.” (McDermott Will & Emery)
2. Allow employees to donate accumulated leave in exchange for cash:
“One way that employers can assist affected employees is by enabling employees to donate vacation, sick, or personal leave in exchange for employer contributions to charitable organizations for the relief of disaster victims… The new IRS guidance permits employers to adopt leave-based donation programs under which the donating employee is not subject to income or FICA taxes on the donated leave, and the payments from charitable organizations to the recipients are also exempt from income and FICA taxes.” (Morgan Lewis)
3. Form a new relief organization:
“[T]he IRS said it will expedite the review of applications for exempt status by organizations seeking to provide relief for the hurricane victims. Taxpayers are advised to caption their applications for recognition of tax-exempt status ‘DISASTER RELIEF HURRICANE SANDY’ to receive expedited attention.” (Ballard Spahr)
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Further reading:
- Employers Can Provide Tax-Free Disaster Assistance to Employees – McDermott Will & Emery
- IRS Guidance Encourages Leave Donation Programs for Hurricane Sandy Victims – Morgan Lewis
- Employers Can Provide Tax-Free Benefits to Employees Affected by Hurricane Sandy – Ballard Spahr LLP
- Employee-Assistance Programs Available to Employers in the Wake of Hurricane Sandy – Duane Morris LLP
- Hurricane Sandy: IRS Permits Tax Relief for Leave-Based Donations Programs – XpertHR
- IRS Issues Guidance on Hurricane Sandy Disaster Relief Efforts – Proskauer
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Also see:
- Hurricane Sandy Aftermath a HR Nightmare for Workers and Their Employers
- 3 Tips for Filing Hurricane Sandy Insurance Claims for Your Business
- Riding Out the (Franken)Storm: 5 Ways to Prepare Your Business for Disaster Recovery
- Does Your Business Insurance Cover Losses from Hurricane Sandy?
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