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IRS extends employer leave-based donation programs

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Tax Hot Topics newsletter The IRS has extended (Notice 2021-42) the favorable federal income and employment tax treatment for employers and their employees of cash payments made for the relief of victims of the COVID-19 pandemic under employer sponsored leave-based donation programs. The extension runs through Dec. 31, 2021.

Through an employer sponsored leave-based donation program, employees may elect to give up vacation, sick, or personal leave in exchange for cash payments (made by their employers) to Section 170(c) charitable organizations that provide relief to victims of the COVID-19 pandemic in affected geographic areas.

Notice 2020-46 initially provided guidance for cash payments through an employer-sponsored leave-based donation program to Section 170(c) charitable organization. However, this notice was limited to payments made prior to Jan. 1, 2021.

Under Notice 2021-42 and Notice 2020-46, employees who donate leave do not recognize compensation and cannot take a deduction for charitable contributions for the value of the leave donated. An employer that sponsors a leave-based donation program may take a deduction under either Section 170 or Section 162 for the cash payments if all other requirements of either section are met.

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

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