Employers may provide tax-deductible hardship assistance to employees

If you’re an employer and concerned about helping your employees get through the COVID-19 crisis, there’s a tax-deductible way to do it that is also non-taxable to your employees.

Congress passed IRC section 139 in 2002 in response to the 9/11 attacks. The law enables employers to make relief payments to employees in a federally declared disaster, such as the COVID-19 pandemic. This includes the employer paying certain expenses for employees, such as:

  • Medical expenses not reimbursed by insurance (including deductibles and out-of-pocket costs)
  • Over-the-counter medications
  • Hand sanitizers and disinfectants
  • Costs to work at home during the pandemic:
    • Cost of computers, printers and printer paper
    • Home office set-up costs
    • Cell phones
    • Higher levels of bandwidth
    • Office supplies at home
    • Increased utility costs
    • Employees’ child care or tutoring for family members who are not permitted to attend school or daycare
    • Costs for caring for COVID-19-diagnosed family members
    • Additional housing costs incurred for quarantining family members

The law permits payments to employees for reasonable and necessary personal, family, living or funeral expenses incurred due to the COVID-19. Those payments are deductible by the employer and non-taxable to the employee.

However, the law does not allow payments for lost income.

There is no requirement for a specific employment period for which the employee is eligible. The employer does not need a formal, written plan document. No accounting is needed by the employee as long as the expense is reasonable. Of course, it’s always a good idea to keep receipts just in case.

Similarly, employers should account for all payments per employee. The program should also have a clear start and end date and the employer should stipulate the types of expenses that qualify, along with a maximum amount per employee and for the entire plan.

For more information, contact your Sol Schwartz & Associates professional. For further reading, visit a helpful article here from Forbes.