Tax Treatment of Employer Contributions to Hurricane Relief
In the aftermath of Hurricane Harvey's devastation of many Texas communities, neighbors, friends, family members, and even strangers have banded together to lend a helping hand to the many people affected by this tragedy. Employers are also reaching out to help their employees through (1) direct giving to employees; (2) employer-sponsored donor advised funds; and (3) employer-sponsored public charities. Employers should be aware that each of these methods can have distinct tax repercussions.
Direct Giving to Employees: When an employer makes payments to an employee to pay for expenses not otherwise covered. If the payments are "qualified disaster relief payments" then the payments do not count towards the employee's gross income and are deductible by the employer. Qualified disaster payments do not include payments for expenses covered by insurance, lost wages, lost business income, or unemployment compensation.
Employer-Sponsored Donor Advised Funds: Employer-created funds to help employees with the expenses they have incurred because of disasters. These funds are typically run in conjunction with a sponsoring organization, such as a public charity. Donations to these funds are eligible for charitable deductions if the eligibility requirements for the fund are met. These funds cannot generally make grants to individual persons, and any amount received by employees is not included as income.
Employer-Sponsored Public Charities: When the employer creates a public charity to help the victims of a disaster or other employee-hardship situation. These donations are deductible as general charitable donations, and the amount received by employees are not included in gross income.
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