Could good intent actions now cause tax trouble later?
The Gulf Coast states may be out of sight of Nevada, but the region and the people who live there and in the Caribbean are not out of mind. Waves of hurricanes have hit the region in recent weeks, from Harvey to Irma. Maria is working its way through the vicinity now. Devastation is great. People are in real need and many in the Silver State likely feel inspired to do something to help.
Money is welcome. Indeed, organizations helping direct relief to the affected states say cash is better than material donations because it can be directed toward things most needed. However, disposable income may be in short supply for average Nevada workers. In recognition of that and to bridge the gap to cover the need, the IRS has opened the door for employers to consider initiating leave-based donation programs.
What such programs do is let workers at participating companies exchange vacation, personal time off or sick leave days they have for cash. The money the employer would normally pay to fund those benefits can be sent to relief organizations helping after the hurricanes. Specifically, the IRS pledges that such donations won’t be counted as taxable income to employees and employers can deduct the payments as a business expense.
It should not surprise anyone that the action is not without its limitations. Any company opting into such a program has to be sure the agency receiving the funds fits the description of a legitimate organization under the Internal Revenue Code. The funds also have to be donated by Jan. 1, 2019. On the employee side, workers can’t claim the donation as a charitable deduction on income taxes.
One risk to employers and employees under this kind of program is that they could face tax challenges from the IRS later if they don’t do everything according to the rules. If such issues do develop, consult an attorney for help weathering that storm.