On October 3, 2016, under Notice 2016-55, the IRS will announce that employees won’t be taxed when they forgo vacation, sick, or personal leave in exchange for employer contributions of amounts to Section 170(c) charitable organizations providing relief to Louisiana storm victims. Notice 2016-55 will also provide that employers may deduct the amounts contributed as business expenses.
Leave-based donations. Some employers have set up or may be considering setting up programs where employees can donate their vacation, sick, or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for the victims of the August 2016 Louisiana storms.
Tax treatment. In Notice 2016-55, the IRS will announce that it will not assert that cash payments an employer makes to Section 170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo, constitute gross income or wages of the employees, if the payments are:
- Made to the Section 170(c) organizations for the relief of victims of the Louisiana storms; and
- Paid to the Section 170(c) organizations before January 1, 2018. Nor will giving employees the choice to participate cause employees to be considered in constructive receipt of income.
It should be noted that employees who participate in a leave-sharing donation program won’t be allowed to claim a charitable contribution deduction for the value of forgone leave excluded from compensation and wages.
As for employers, the IRS has provided that it won’t assert that payments made under a leave-sharing donation program are deductible as charitable contributions under Section 170, rather than as business expenses under Section 162.
Finally, it should be noted that a written disaster leave-sharing plan is required in order to take advantage of the above-referenced IRS leave-sharing pronouncements. Specifically, a list of enumerated requirements must be met in order to be subject to the above-enumerated IRS leave-sharing program.