IRS extends relief for leave-based donation programs
TAX ALERT |
Authored by RSM US LLP
On June 30, 2021, the IRS issued Notice 2021-42, extending the tax relief previously provided in Notice 2020-46. Together, these notices provide guidance to employers whose employees choose to forgo sick, vacation or personal leave because of the COVID-19 pandemic.
Leave-based donation programs allow employees to elect to forgo certain paid leave in exchange for the employer then making cash payments for the value of that leave to charitable organizations that provide aid to individuals harmed by a certain disaster. Generally, these cash payments are treated as wages or compensation to employees for federal income tax and employment tax purposes under the constructive receipt or assignment of income principles. In limited circumstances, the IRS will grant relief that provides the amount is not taxable to the employees that forego their paid leave.
Historically, the IRS has granted this relief for disasters such as major hurricanes and the September 11 terrorist attack. Notice 2020-46, released in June 2020, offered the same relief available in prior disasters for the COVID-19 pandemic. The updated Notice now further extends that guidance for 2021 because of the ongoing nature of the pandemic.
In general, the employee’s donated time does not need to be treated as wages for income or payroll tax purposes if it meets the following criteria: (1) the payment is made to a section 170(c) organization for the relief of victims of the COVID-19 pandemic in the affected geographic areas; and (2) the payment is paid to the section 170(c) organization after Dec. 31, 2020 and before Jan. 1, 2022.
The employees who forgo leave may not then claim a charitable contribution deduction on their individual tax returns. Employers are permitted to deduct the cash payments under the rules of section 170 or section 162 if the employer otherwise meets the respective requirements.
For other employer assistance mechanisms, refer to our article.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Anne Bushman, Katie Beaver and originally appeared on 2021-07-06.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.