An employer-sponsored “qualified disaster relief program” may be just the answer for institutions beleaguered by recent hurricanes.
Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii). MBC incurred significant damage to their campus from Hurricane Irma. All of their employees had property damage – some catastrophic – but no major injuries.
As a result of the disaster, MBC has several tax-advantaged options that they might utilize to assist/benefit their employees’ families who were victims of the hurricane. These options include qualified disaster relief payments, charitable leave donation programs, disaster assistance leave banks, tax-advantaged distributions from retirement plans, and employer-sponsored charitable organizations.
MBC decided – as an initial step – to establish an “qualified disaster relief program” which allows MBC to assist employees and their families who were victims of the hurricane through “qualified disaster relief payments.” To enact this “program,” MBC adopted a written policy limiting the use of funds to actual losses and adhering to the procedures set forth by the IRS in Publication 3833 (page 14).
From IRS Publication 3833:
INCOME TAX TREATMENT OF QUALIFIED DISASTER PAYMENTS
Internal Revenue Code section 139 provides that qualified disaster relief payments from any source, including employers, reimbursing or paying individuals’ specified expenses in connection with qualified disasters are not taxable as income and are not subject to employment taxes or withholding.
A qualified disaster is defined in section 139 as a disaster that:
- results from terrorist or military actions,
- results from an accident involving a common carrier,
- is a Presidentially declared disaster, or,
- is an event that the Secretary of the Treasury determines is catastrophic.
Qualified disaster relief payments within the meaning of section 139 include payments received (regardless of the source) for the following expenses:
- reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster,
- reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a qualified disaster (a personal residence can be a rented residence or one you own), and,
- reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a qualified declared disaster.
Qualified disaster relief payments do not include:
- payments for expenses otherwise paid for by insurance or other reimbursements, or,
- income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation
- There are numerous tax-advantaged opportunities for providing relief to disaster-affected employees and their families.
- “Qualified disaster relief payments” are an option that allows a tax-exempt employer a FICA exclusion and allow the employees/victims income and FICA exclusions.
- A written
- Employer-sponsored charities (public charities, donor advised funds, private foundations) may be the answer for an institution seeking to provide disaster relief to affected employees and their families.
- Other opportunities include establishing “charitable leave programs” for employees who are victims of hurricanes and other qualified disasters.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.