Leave-based donation programs may provide aid to Hurricane Michael victims

Tax Hot Topics newsletterThe IRS released guidance in Notice 2018-89 regarding the treatment of cash payments made by employers under leave-based donation programs to provide relief for victims of Hurricane Michael.

Specifically, the IRS provides that cash payments made by an employer to Section 170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo will not constitute gross income or wages to the employees if the payments are:

  • Made to the Section 170(c) organizations for the relief of Hurricane Michael victims
  • Paid to the Section 170(c) organizations before Jan. 1, 2020

Because the value of the surrendered paid leave is not includible in the employee’s income, the employer is not required to report the value on the employee’s Form W-2 or withhold federal income taxes or FICA taxes. The employer is allowed a compensation deduction under Section 162 for the value of the paid leave contributed to the charitable organization. However, employees may not claim a charitable deduction under Section 170 for the value of forgone leave excluded from compensation and wages.

The IRS made available similar relief for victims of the Louisiana floods in 2016, Hurricane Sandy in 2012, Hurricane Katrina in 2005 and the Sept. 11, 2001, terrorist attacks.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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