IRS Offers Trade-off to Help Hurricane Victims

By Ken Berry

The power still may be out for hundreds of thousands of residents in areas devastated by Hurricane Sandy, but at least the IRS is giving business people around the country another opportunity to help victims out. Under a special program, similar to previous ones designed to benefit victims of 9/11 and Hurricane Katrina, leave payments owed to employees can be turned into cash donations that are deductible by employers (Notice 2012-69).  
"It's for employers that offer this program to their employees, including the federal government," said IRS spokeswoman Peggy Riley. "It's just another way for those who are not as fortunate as others and want to help out to show their support. There are a lot of charities set up to help the victims. But this is another way, if they don't have the cash to help donate themselves."

Exempt Payments

Payments made by an employer to a charity in exchange for vacation, sick, or personal leave are exempt from income and employment taxes if:

  • The payment is made to a qualified organization providing relief to the victims of Hurricane Sandy; 
  • The organization meets the requirements of Section 170(c) of the Internal Revenue Code; and
  • The payment is made before January 1, 2014.
Under the new IRS program, an employee may elect to donate amounts owed for leave - such as vacation, sick, or personal days - in exchange for cash payments made by the employer to a qualified tax-exempt organization benefitting Hurricane Sandy victims. The employer then can claim charitable tax deductions for those payments. The IRS says that the tax break will apply to payments made before January 1, 2014.
Employees who are giving up their accrued pay won't be liable for any income or employment taxes on the donated leave, but they aren't entitled to any tax deductions, either.  
The leave-for-deduction trade-off comes on top of various other relief programs announced by the IRS in recent days. 
Note that the tax law also provides fast tax relief to taxpayers who suffer damages to property in federally designated disaster areas. Victims of such disasters can choose to claim casualty losses on the tax return for tax year immediately preceding the year of the event. For instance, taxpayers in designated counties may deduct casualty losses caused by Hurricane Sandy by filing an amended return for 2011 instead of waiting to file their 2012 returns in 2013. Caveat: The usual limits for casualty losses still apply. Annual losses are reduced by $100 per event, and only the excess unreimbursed loss above 10 percent of AGI is deductible.
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