IRS Issues Guidance on Tax Treatment of Employer Leave-Based Programs to Help Victims of New Russian Invasion of Ukraine | Murtha Cullina
On May 19, 2022, the IRS issued Notice 2022-28 (available here), which provides guidance under the Internal Revenue Code (the “Code”) on the federal tax treatment of income and employment of cash payments made by employers in the code section. 170(c) charities through employer leave-based donation programs to help victims of the new Russian invasion of Ukraine, which began on February 24, 2022.
As a backdrop, under an application of a general tax principle known as the “income attribution doctrine”, donations of unused vacation, sick, personal or other leave made by employees in exchange for charitable contributions made by their employers are generally taxable to employees. and subject to federal income tax withholding and other applicable employment taxes (eg, FICA and FUTA taxes). Employees who are eligible to participate in employer-sponsored leave donation programs, but choose not to participate, are not taxed on their unused leave simply because they were eligible to participate in the program.
From time to time, however, the IRS has provided temporary exceptions to the general tax rule for leave-donation programs, usually as a result of terrorist attacks, natural disasters, or pandemics. For example, in Notice 2001-69, the IRS granted an exception from taxation for gifts of leave made by employees to fund charitable contributions made before January 1, 2003 to assist victims of the terrorist attacks in September 11, 2001. In Notice 2005-68, the IRS granted another exception for donations of leave made by employees in exchange for an employer’s cash contributions made before January 1, 2007 to charitable organizations helping Hurricane Katrina victims. More recently, in Notices 2020-46 and 2021-42, the IRS granted another exception for leave donations made by employees in exchange for an employer’s cash contributions made before January 1, 2022 to organizations. charities to help victims of COVID-19. pandemic.
Tax Notice 2022-28. Now, in Notice 2022-28, the IRS has provided guidance under the Code on the Federal Income and Employment Tax Treatment of Cash Payments Made by Employers Under Gift-Based Programs leave to help the victims of the new Russian invasion of Ukraine.
Donation programs based on employer leave. Notice 2022-28 explains that, under employer leave-based giving programs, employees may choose to forego vacation, sick or personal leave in exchange for what their employers make cash payments to charities under section 170(c) of the Code. Cash payments made by an employer to charities under section 170(c) of the Code under an employer leave-based donation program are referred to as “leave-based donation payments”. the employer”.
Tax Treatment of Qualified Employer Vacation-Based Donation Payments. Under the temporary relief provided in Notice 2022-28, donation payments based on employer leave made by an employer before January 1, 2023 to charities under Section 170(c) of the Code to help victims of the new Russian invasion of Ukraine (i.e. “employer leave-based donation payments”) will not be treated as gross income or salary ( or remuneration, as the case may be) of the employees of the employer.
Similarly, employees who elect, or have the ability to elect, to waive leave that funds the Qualified Employer’s leave-based gifting payments will not be treated as having implicitly received gross income or salary (or compensation, if applicable).
Employers should not include the amount of qualified employer leave-based gift payments in box 1 (wages), box 3 (social security wages) (if applicable) or box 5 (wages Medicare) Form W-2 for elective employees.
Employees are not eligible to claim a charitable contribution deduction under Section 170 of the Code for the value of forgone leave that funds qualified employer leave-based donation programs.
An employer may deduct donation payments based on qualifying employer leave under the rules in Code Section 170 (deductions for charitable contributions and gifts) or Code Section 162 (deductions for ordinary and necessary business or commercial expenses) if the employer otherwise satisfies the respective requirements of either Code section.