The IRS has announced two initiatives that provide tax incentives to those helping in the fight against Ebola.
First, employees who want to help fight the ongoing Ebola tragedy in West Africa, but can’t afford to donate any money out-of-pocket, may have another alternative: an employer leave-based donation program. A number of companies have established programs that allow their employees to donate their vacation, sick days, or personal leave in exchange for the employer making cash payments to charities providing relief for Ebola victims. The IRS has announced that employees won’t be taxed on the value of the leave they give up when they participate in such programs. Moreover, the employers may deduct their donations as a business expense (rather than a charitable contribution). This should encourage employers to participate in the programs because business expenses are more easily deductible than charitable contributions by many business owners. These donations must be made before January 1, 2016 by qualified tax-exempt organizations providing relief for Ebola victims in Guinea, Liberia, or Sierra Leone. (IRS Notice 2014-68.)
Employees who participate in such programs won't be allowed to claim that the value of the forgone leave constitutes a deductible charitable contribution. However the dollar value of such foregone leave need not be included in the employee’s taxable compensation—indeed, it doesn’t even have to be reported to the IRS on Form W-2. Vacations, sick pay, and personal leave are ordinarily subject to both income and Social Security and Medicare taxes. Thus, such a leave donation will effectively result in a tax deduction for an employee. For example, an employee who donates $1,000 worth of leave, will get the equivalent of a $1,000 tax deduction because that amount will be excluded from his or her taxable income.
This is not the first time the IRS has provided tax relief to encourage aid efforts. A similar leave donation program was made available for victims of Hurricane Sandy in 2012 and Hurricane Katrina in 2005.
The IRS has also designated the Ebola outbreak in Guinea, Liberia, and Sierra Leone as a qualified disaster for purposes of the tax exclusion for qualified disaster relief payments made by employers to their employees. (IRC Sec. 139.) These type of payments usually include amounts to cover necessary personal, family, living, or funeral expenses not covered by insurance. Such payments need not be included in the employee-recipient’s taxable income and the employer may take a tax deduction for them. (IRS Notice 2014-65.)
This means, for example, that an employer who reimburses an employee living in Guinea for medical expenses incurred due to the Ebola outbreak there need not include the payments in the employee’s income for federal income tax purposes.