The Internal Revenue Service is providing guidance on how employers and employees can help Ukraine while also qualifying for tax relief on the donation program.
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“Under a leave-based donation program, an employer may permit its employees to give up their vacation, sick or personal leave in exchange for cash payments by the employer to charitable organizations,” the IRS said in an email Tuesday to payroll professionals.
In the notice, which was issued in May, the IRS pointed out that the invasion that started Feb. 24. has caused “widespread loss of human life and other loss to the citizens and residents of Ukraine, including loss of shelter, food, medical care and jobs.”
In March, President Biden announced a continuation of the national emergency with respect to Ukraine, as stated in previous executive orders, because certain actions and policies of the Russian Federation further threaten the peace, stability, sovereignty and territorial integrity of Ukraine. On March 3, the Department of Homeland Security announced it designated Ukraine with temporary protected status.
The Treasury Department and the IRS acknowledged they’re aware that employers may have adopted or may be considering adopting employer leave-based donation programs to help citizens and residents of Ukraine; individuals who are working, traveling or currently present in Ukraine; or refugees from Ukraine.
The notice provides guidance under the Tax Code on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine. The guidance is similar to guidance provided in 2001 and 2003 regarding charitable relief in the aftermath of the 9/11 terrorist attacks.
Under employer leave-based donation programs, employees can elect to forgo vacation, sick or personal leave in exchange for their employers making cash payments to charitable organizations. Cash payments made by an employer to Section 170(c) charities under an employer leave-based donation program are referred to as “employer leave-based donation payments.”
Under the guidance, employer leave-based donation payments made before Jan. 1, 2023, to 170(c) organizations to aid victims of the Ukraine invasion will not be treated as gross income or wages (or compensation) of the employees of the employer. Similarly, employees electing or with an opportunity to elect to forgo leave that funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable).
Employers should not include the amount of qualified employer leave-based donation payments in Box 1, 3 (if applicable), or 5 of the electing employees’ Form W-2. Electing employees aren’t eligible to claim a charitable contribution deduction under Section 170 for the value of the forgone leave that funds qualified employer leave-based donation payments. An employer can deduct qualified employer leave-based donation payments under the rules of Section 170 or Section 162 if the employer otherwise meets the requirements of either section of the Tax Code.
