employer donation program

2020 has proved to be perturbing for the entire world. We all are struggling to keep our heads above water during this COVID-19 crisis. The United States has been one of the worst-hit nations in this Health Disaster. Akin to most countries, where various schemes and programs have been launched to rehabilitate their citizens, the United States Government has also initiated different relief programs for the Americans. Most programs are aimed at giving a boost to the overall funds allocated to fight the malign COVID-19 disease.

Introduction to the Employer Leave-Based Donation Programs

The Employer Leave-Based Donation Programs are among the recently introduced schemes by the Internal Revenue Services (IRS). These programs are aimed to promote essential contribution towards the relief work for COVID-19 victims. The Donations can be made to Qualified Charitable Organizations by the Employers. Such Donation Schemes involve important tax benefits for the Contributors by the IRS.

What are Leave-Based Donation Programs?

In the general sense, Leave-Based Donation Programs are special initiatives undertaken by Employers in agreement with their Employees. Under such programs, the Employees agree to the relinquishment of any Accrued Sick, Vacation, or Personal Leave Payments. Instead, they allow the Employer to make equivalent donations to relief work or charitable organizations.

The Leave-Based Donation Programs appeal largely to the populace. They are a simple method for Employees to make donations. A large chunk of the Employees does not possess easily expendable resources to make contributions to Reinforcement Tasks against any Calamity or Health Emergency. When an Employee does not expect to use the Accrued Leave, they can prove as a lucrative option to apply for endowments.

Leave-Based Donation Programs and Leave-Sharing Programs are launched by Entities depending on the existing state of affairs in the Business Environment. These Leave-Based Donation Programs or Leave-Based Sharing Programs also have specific compliance requirements and tax consequences.

There is, however, a difference between Leave-Based Donation Programs and Leave-Sharing Programs. Under a regular Leave-Sharing Initiative, an Employee having excess unused paid leaves accrued has the option to make relevant contributions for fellow workers from his or her hours of paid leave to an explicit “Leave Bank” managed by the respective Employer. Under pre-specified emergency conditions and after due approval, these paid leaves can be availed from the Leave Bank by any needy Employee of the Entity.

Introduction to the Employer Leave-Based Donation Programs

  • Leave-Based Sharing or Donation Programs for Medical Emergencies
  • Leave-Based Sharing or Donation Programs for Major Disasters

In the United States, the regulations applicable to Leave-Sharing programs may differ for each of the different states. IRS-Approved Leave-Sharing Programs entail separate tax requirements for the Employer, the Employees who are Leave Donors, and the Recipient Employees. Under Leave-Sharing Program for Medical Emergencies, an Employee can offer his excess paid leaves as a donation to tackle any prevailing Health Predicament to a fellow employee. These Programs need to be appropriately backed by the Employer.

On the other hand, an Employer Leave-Based Donation Programs for Medical Emergency or Major Disasters include donations made to recognized charitable organizations. Currently, the Leave-Based Donation Schemes are being encouraged to provide assistance for the Coronavirus induced Medical Emergency in the USA. The United States Government had declared COVID-19 as an Emergency Situation in March 2020 itself.

Tax Relief under Notice 2020-46 released by the IRS

This June 2020, IRS issued the Notice 2020-46 to provide relevant guidelines to the USA’s citizens to smoothly conduct Leave-Based Donation Programs in support of the fight against COVID-19 Pandemic.

Notice 2020-46 states that to provide a vital benefit to the victims of the Corona Virus disease throughout the affected Geographic Area of the country, Employers may have already initiated or plan to begin Leave-based Donation Programs.

Under the COVID-19 Specific Leave-Based Donation Programs, Employees can opt for forgoing their Vacation, Sick, or Personal Leaves in return for cash payments made by Employers on their behalf subject to the following conditions:

  • The payment is made to Charitable Institutions as mentioned in Section 170(c) of the Internal Revenue Code working for providing aid to victims of COVID-19 Pandemic, and
  • The treatment specified in the Notice overrides the conventional tax rules and principles of Assignment and Constructive receipt of Earnings, for contributions made before January 1, 2021.

Under the Leave-Based Donation Programs, IRS extends beneficial tax reliefs for both Employer and his Employees.

Tax Relief Available for Employees

The corresponding cash donation made from the amount of Paid Personal, Sick, and Vacation Leaves will not be taxed in hands of the donor employees. In the Notice, IRS has stated that the Employees who elect to forgo their paid leaves will not be considered as constructively receiving compensations, wages, or gross income for the respective cash payments. This contributed amount is not to be reported in Form W-2 in the applicable Box 1, 3, or 5.

Moreover, the Employees will not be allowed to treat the cash payments made as a donation as eligible for Deductions as per Schedule-A- Itemized Deductions for calculation of Taxable Income for the Year 2020.

Tax Relief Available for Employers

Under the scheme, the Employer is allowed to account for the cash payments donated as a business expense. This expense head falls under rules of Section 162 or 170 of the Code, where the Employer conforms to the respective conditions under the given sections.

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