While employers and employees alike are asking questions about the proper workplace response to the Ebola outbreak in West Africa, these same folks are also asking how they can help the victims, their families and those who care for them. Fortunately, on October 29, the Internal Revenue Service (IRS) utilized its statutory authority to issue two items of guidance on how employees and employers can support those affected by the Ebola outbreak in West Africa. While the IRS often issues relief for weather-related disasters, they sparingly issue this type of relief for medical emergencies.
Leave-Based Donation Guidance
First, under the leave-based donation guidance, employees of employers that have established or plan to establish a leave donation program may donate their vacation, sick, or personal leave in exchange for employer cash payments. To qualify under this guidance, the employer contributions must be made to qualified tax-exempt organizations (which are searchable on the IRS’s Exempt Organizations Select Check) that provide relief for victims of the Ebola outbreak in Guinea, Liberia or Sierra Leone. Employees can forgo leave in exchange for employer cash contributions as long as the exchange is made before January 1, 2016. Under this special relief, the donated leave will not be included as taxable income or wages on the employee’s Form W-2, and there are no payroll tax withholdings in connection with the donated leave.
Employers may deduct the amount of their cash contributions on their federal income tax returns. However, employees who participate in a leave donation program may not claim a charitable contribution deduction for the value of the forgone leave that is excluded from their gross income or wages–otherwise, they would be “double dipping.”
The IRS provides the following example:
[I]f an American company has such a program and makes a cash donation of the value of an employee’s donated leave before January 1, 2016, to an organization that is providing medical services and supplies for the relief of victims of the Ebola outbreak in Guinea, Liberia, or Sierra Leone, the IRS will not consider the amount of that payment as gross income or wages of the employee. Additionally, the IRS will not assert that the U.S. company can only deduct such cash payments under Internal Revenue Code section 170.
Second, under the qualified-disaster guidance employees who receive qualified relief payments from their employers related to the Ebola outbreak in the three designated West African countries may exclude those payments from income on their tax returns. Qualified payments generally include amounts to cover necessary personal, family, living or other expenses that are not covered by insurance. The IRS provided two examples:
[I]f an employee living in Guinea receives reimbursement from an employer-sponsored charitable organization for medical expenses incurred by the employee as a result of the Ebola outbreak in Guinea, such reimbursement will not be included in the employee’s gross income for U.S. federal income tax purposes.
[I]f an employee of an American company is relocated within Liberia under a quarantine order due to the Ebola outbreak in Liberia, and the American company pays for the employee’s transportation, rent and living expenses related to the quarantine order, such payments will not be included in the employee’s gross income for U.S. federal income tax purposes.
Right now, the U.S. and global communities seem to be focused on the health and safety concerns around the Ebola outbreak, and for good reason. But, the IRS guidance should encourage all of us to redirect at least some of our attention and energy on taking care of each other during times of crisis and natural disaster.