Employer Qualified Disaster Relief Payments (IRC Section 139)

Following the destruction resulting from Hurricane Harvey, many employees are finding themselves in need of financial assistance. Employers can make payments to their employees to reimburse or pay for certain expenses in connection with a “qualified disaster” and these funds will not be taxable as gross income to the employee or subject to employment taxes or withholding. Under Code Section 139, a “qualified disaster relief payment” includes the following:

  • Personal, family living or funeral expenses
  • Repair of personal resident and its contents (rented or owned)
  • Temporary Housing
  • Transportation
  • Medical

Unexpected pitfalls of crowdfunding

It’s easy enough for an employer to send money through a simple fundraising site such as GoFundMe.com, but giving through such a vehicle probably doesn’t qualify for any sort of tax benefit. An individual can’t qualify as a charitable organization under Section 501(c)(3) of the Code, which requires that the recipient provide a “public benefit”. Not to mention there is a lot of paperwork involved. Such contributions between employers and employees are generally treated as “gifts between unrelated individuals”. A specific donation through a GoFundMe page should be reported as income to the employee recipient, even if a relative, not the employee, is the beneficiary of the donations.

To avoid issues over income tax treatment, employers should make qualified disaster relief payments (see above) to employees and members of employees’ families.

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