IRS Provides Guidance on PTO Donation Programs to Aid Victims of Hawaii Wildfires

On September 28, 2023, the Internal Revenue Service (IRS) issued updated guidance for employers that have adopted or are considering leave-based programs that allow employees to donate sick, vacation, or personal leave to their employers to make donations to charitable organizations helping those affected by the 2023 Hawaii wildfires.

Quick Hits

• The IRS provided guidance on leave-based programs that allow employees to donate vacation, sick, or personal leave in exchange for employer donations to charitable organizations aiding victims of the 2023 Hawaii wildfires.
• Such donation payments by employers in 2023 and 2024 to qualifying charitable organizations will not be treated as gross income or wages to the donating employee.

In Notice 2023-69, the IRS clarified the tax treatment of programs that allow employees to donate vacation, sick, or personal leave in exchange for their employers making donations to charitable organizations aiding the victims of the wildfires that affected parts of Hawaii beginning on August 8, 2023.

According to the notice, donation payments made by an employer before January 1, 2025, to qualifying charitable organizations under Section 170(c) of the Internal Revenue Code “will not be treated as gross income or wages (or compensation, as applicable).” Employees who forgo leave for such a program will not be treated as having received the value of those donation payments as gross income or wages and cannot claim a charitable contribution deduction for the donated leave.

However, employers may deduct cash donation payments as a business expense or as a charitable contribution as long as “the employer otherwise meets the respective requirements of either section of the Code.”

Next Steps

The IRS notice regarding leave-based donation programs for the Hawaii wildfires is the latest similar action taken by the IRS to provide favorable tax treatment for donations made to Code Section 170 organizations in connection with disasters, including the COVID-19 pandemic. Since the donation payments are not considered “wages” for employment tax purposes, employers may avoid payment of the employer portion of Social Security and Medicare taxes on the donated leave amounts and employees may avoid the inclusion of such amounts in income for tax purposes. Employers may want to consider adopting such a leave donation program or other tax-advantaged programs to make donations to Code Section 170 organizations to help those affected by the Hawaii wildfires and other disasters.

Ogletree Deakins’ Employee Benefits and Executive Compensation Practice Group will continue to monitor developments and will provide updates on the Employee Benefits and Executive Compensation blog.

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