Disaster Relief Payments for Employees
On March 13, 2020, President Trump declared the Coronavirus (COVID-19), a national disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. By doing this, it unlocked the option for employers to utilize Section 139 of the Internal Revenue Code (IRC). Section 139 provides a way for employers to assist their employees during a designated federal disaster with tax-free “qualified disaster relief” payments. These payments are deductible by the employer and excluded from the employee’s gross income.
What is qualified under Section 139?
Under Section 139, employers can reimburse or pay for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. It also covers costs for repair or rehabilitation to a residence and its contents if the damage can be attributed to a qualified natural disaster.
Since COVID-19 is not a typical national disaster, it is unclear what expenses would qualify for disaster relief payments, and unfortunately, the IRS has not issued any recent guidance. However, some examples of items that would likely qualify include the following:
- Medical costs (not covered by insurance)
- Childcare expenses (due to school/daycare closings)
- Home office expenses (office set-up, internet access, cell phone usage, etc.)
- Commuting expenses (due to lack of public transportation or job relocation)
- Critical care or funeral costs due to COVID-19
- Hand sanitizers and home disinfectant supplies
Items that are excluded:
- Non-essential or luxury items
- Cable/streaming services
- Items that are reimbursed or covered by insurance
- Wage replacement/lost wages
Employers are not required to create a written plan for qualified disaster payments; however, having a written plan is highly recommended as a best practice.
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