IRS Provides Leave-Based Donation Programs
On Nov. 19, 2018, the IRS issued Notice 2018-89 to provide guidance on the treatment of leave-based donation programs to aid victims of Hurricane Michael. Under the special tax-relief program, employers may choose to give employees the opportunity to forgo vacation, sick, or personal leave in exchange for cash payments that the employer then uses to make donations to charitable organizations related to victims of Hurricane Michael (pursuant to IRC Section 170(C)). This notice provides additional detail for employers that have adopted or are considering adopting leave-based donation programs with a specific exception to the general rule that such cash donations are excluded as taxable income for the employee. Similar relief has been previously provided by the IRS after disastrous hurricanes or wildfires.
Generally, making a cash donation to a charitable organization through an employer program would result in an employee’s constructive receipt of the cash. Under this notice, however, the treatment of cash payments for income and employment tax purposes when an employee makes a charitable contribution in exchange for vacation, sick or personal leave will not constitute gross income or wages as long as the payments are made to a charitable organization for the relief of Hurricane Michael victims and the money is paid before Jan. 1, 2020.
Please note that employees that elect to donate the leave may not claim a charitable contribution deduction on their income tax returns (to avoid “double dipping”). For the employer, such cash donations provided by the employee shouldn’t be included in Box 1, 3 (if applicable) or 5 of Form W-2.
Employers that seek to offer a leave-based donation program for victims of Hurricane Michael should review the notice and provide employee notifications of the program. Donations can be made through Dec. 31, 2019.