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As businesses continue to deal with the pandemic and look for ways to assist their employees, Section 139 payments are a great way to benefit both the employee and the employer.
This month marks one year since an emergency declaration for the entire United States was made in response to the COVID-19 pandemic. This March 13, 2020 declaration was followed by the Coronavirus Aid, Relief, and Economic Security Act (CARES) two weeks later. As a result, an opportunity became available to both employers and employees in the form of Section 139 disaster relief payments, and that opportunity remains available even as some other programs expire throughout the pandemic.
Section 139 of the Internal Revenue Code allows employers to make payments to employees who have been affected by a federally declared disaster, with those payments not being included as taxable compensation, while the employer is able to take the payments as a tax deductible expense. A qualified disaster relief payment is a payment made to or for the benefit of an individual “to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of the qualified disaster.” Section 139(b). A “qualified disaster” is defined as a disaster resulting from terroristic or military actions, a federally declared disaster, a disaster determined by the IRS to be of catastrophic nature, or a disaster determined by federal, state, or local government or agency. Section 139(c).
In general, employers can pay or reimburse any reasonable and necessary expense incurred by an employee due to the declared disaster. The IRS has not provided specific guidance in regard to COVID-19, but prior guidance has indicated the following expenses are likely permissible for reimbursement:
1) Home office costs
2) Medical expenses related to COVID-19
3) Childcare costs caused by COVID-19
4) Costs associated with a different commute due to COVID-19
Disaster relief payments have not been applied to a disaster of this size before, and Gawthrop Greenwood actively tracks additional federal guidance on types of permissible payments related to COVID-19. Employers should feel free to reach out to our Business Finance & Tax team with any questions.
Gawthrop Greenwood and its team of lawyers will continue to review legislation and governmental decisions as they unfold, as we are committed to providing guidance to our clients. If you have any questions, please do not hesitate to call us at 610-696-8225