Small Business Taxes & ManagementTM--Copyright 2017, A/N Group, Inc.
The IRS has announced (Notice 2017-48) a special relief designed to support leave-based donation programs to aid victims of Hurricane Harvey.
Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster.
Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses. In addition, the IRS will not assert that the opportunity to make such an election results in constructive receipt of gross ncome or wages for employees. Electing employees may not claim a charitable contribution deduction under Sec. 170 with respect to the value of forgone leave excluded from compensation and wages.
This relief is similar to that provided following Hurricane Katrina in 2005, Hurricane Sandy in 2012, the Ebola outbreak in West Africa in 2014, and last year following Hurricane Matthew and severe flooding in Louisiana.
What's the better approach--making a cash donation or donating five vacation days? In most cases you'll come out ahead donating vacation days, for a number of reasons. First, since the pay will not be included in income, you won't pay social security or medicare on the amounts. Second, since the pay won't be included in income the amount won't increase your adjusted gross income (AGI) as would taking the pay and making a donation. This can be important since many tax benefits and additional taxes are geared off of adjusted gross income. For example, the American Opportunity Tax Credit (for college expenses) is phased out if your modified AGI is above $160,000 (married, filing joint). Itemized deductions and exemptions are also phased out based on AGI. So are contributions to IRAs. There are a number of others. Third, if you don't or can't itemize (for federal or state purposes) your deductions, the charitable contribution deduction does you no good. Of course, there are some negatives, such as limits on contributions to pension plans. Use your tax software or talk to your tax advisor.
Information on other tax relief available to victims of Hurricane Harvey can be found at www.irs.gov/hurricaneharvey. For information on government-wide relief efforts, visit www.USA.gov/hurricane-harvey and the IRS page www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey.
Copyright 2017 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 09/07/17