Leave donated for COVID-19 excludable from income

Tax Hot Topics newsletterThe IRS issued Notice 2020-46 to provide guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to provide aid to victims of COVID-19.

Under the notice, cash payments made by an employer in exchange for vacation, sick or personal leave that its employees elect to forgo will not be treated as wages or compensation to the employees or otherwise includible in their gross income if the payments are 1) made to Section 170(c) organizations for the relief of victims of the COVID-19 pandemic in the affected geographic areas, and 2) paid to such organizations before Jan. 1, 2021.

These cash payments also do not have to be included on the Forms W-2 issued to the employees who donate their leave. In addition, employers may deduct these cash payments as a charitable deduction or as a business expense to the extent they otherwise meet the requirements for such deductions. However, employees may not claim a charitable deduction with respect to the value of the forgone leave.

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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