As the coronavirus pandemic emergency unfolds, it’s clear that increasing numbers of employees will likely suffer financial impacts … from quarantines, illnesses, workplace closings, etc. President Trump’s declaration of a national emergency on March 13 now allows employers to make direct disaster-relief payments to assist employees affected by COVID-19.
These types of payments are not treated as income/wages to the employees and are deductible to the employer as ordinary and necessary business expenses. There is no specific cap on the amount of assistance that may be provided to an employee other than it must be “reasonable and necessary” and must not be for an expense reimbursable by the employee’s insurance.
Section 139 of the Internal Revenue Code, allows that a “qualified disaster relief payment” of any amount may be paid to reimburse or pay reasonable and necessary personal, family, living or funeral expenses (not otherwise compensated for by insurance) incurred because of a “qualified disaster.” The term “qualified disaster” includes a federally declared disaster or emergency under the Stafford Act. Accordingly, due to the Declaration, COVID-19 is now a “qualified disaster” for Section 139 purposes, so disaster relief may be provided to employees on a tax-free basis (assuming all the requirements of Section 139 are satisfied).
As always, check with your CPA or attorney before implementing any tax planning strategy for your business.
All of us here at the Huizenga Law Firm strive to make sure you have all the information you need when it comes to the coronavirus. Be sure to look at our blog for more updates on how COVID-19 will effect you and your estate plan. If you have any questions, call us at 712-737-3885 or email us at email@example.com.
Read more at The National Review, Coronavirus National Emergency Declaration Permits Employers to Offer Tax-Favored Financial Assistance to Employees, March 14, 2020