How Your Company Can Give Disaster Relief — and get the tax breaks that go with it.

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BGW team members volunteer with United Way

The Southeast has had its share of natural disasters this year. Hurricanes Florence and Michael tore through our area, leaving a wake of destruction across the Carolinas and the Florida Panhandle. Neighbors close to our Myrtle Beach office were left struggling.  Now, Californians are once again battling incomprehensible wildfires. It’s all so hard to watch. We all want to do something to help.

If you’re an employer whose area has been affected, you may need (and want) to help your employees get back on their feet faster so they can return to work. Alternatively, you may just want to help because it’s the right thing to do. Whatever your motivation, when you give assistance to your employees, there are potential tax benefits to you and your employees.

So, in addition to preparing your business as best you can consider the following approaches for helping your employees recover from disaster:

Leave Sharing Programs

Leave sharing programs allow you to give paid leave employees so they can help with recovery efforts after a disaster while allowing you to deduct that amount from your taxes as long as it is an ordinary, necessary, and reasonable business expense. It is treated no differently from other compensation.

You can also implement a program which allows your employees to donate some of their own paid leave to fellow coworkers who were affected by a disaster and could use the extra paid time off. Employees who give up their paid time off to other employees do not pay income or payroll tax on those amounts. The amount of that leave is taxable for the coworker receiving the paid leave and is subject to income and payroll taxes.

Employee Assistance and Qualified Disaster Relief Payments

If you give assistance to your employees affected by the recent hurricanes located in a federally declared disaster area, the payments you make may be tax deductible for you and not subject to tax for the employee. Qualified disaster relief payments don’t count as gross income for individuals who receive these payments.

Qualified disaster relief payments are meant to pay for “reasonable and necessary” expenses directly incurred as a result of a disaster, as long as the expense isn’t expected to be compensated from another additional source. To qualify for this treatment, payments must be:

  • Personal, family, living and funeral expenses incurred as a result of the qualified disaster
  • Payments to repair or rehabilitate a personal residence, as well as its contents, needed as a result of the qualified disaster

As long as the payments that an individual taxpayer receives are expected to be commensurate with the expenses that have been incurred as a result of the qualified disaster, the taxpayer generally isn’t required to account for actual expenses.

On the other hand, any payments that can be characterized as income replacement, such as unemployment compensation and payments for lost wages, are taxable and should be included in employees’ gross income.

There is much work to do to help our employees and neighbors recover. Leave sharing plans and tax-free payments to affected employees are just a few examples. The rain and wind of the hurricanes may have stopped, and the fires will someday be extinguished, but it’s never too late to help those in need. Give us a call to determine your best approach.

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