Tax Relief for Business – Learn About The Qualified Disaster Relief Payments

LEARN ABOUT THE QUALIFIED DISASTER RELIEF PAYMENTS

Employers are scrambling to find ways of helping their employees who were impacted by the novel coronavirus (COVID-19). There is a little-known reimbursement program that may help! Utilizing this reimbursement program will result in tax free payments being made to qualified employees that are tax deductible to the employer.

COVID has been declared a federal disaster, one determined by the President to warrant federal government assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act., Internal Revenue Code Section 139 can be used to make “qualified disaster relief payments” and provide tax free or reimbursement payments to those affected in order to help them cope with the financial impact of these difficult times.

Because the disaster declaration didn’t specify an end date, Qualified Disaster Relief Payments can be made as long as the disaster designation continues.

Check out some frequently asked questions below on how employers may utilize the ability to make these payments before it’s too late:

What is a “Qualified Disaster Relief Payment”?

Qualified Disaster Relief Payments are made to employees of an organization after they suffer a loss due a federally declared disaster.  Payments may be made to:

Reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred because of a qualified disaster; and/or

    • Reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster.

It is important to note, however, that qualified disaster relief payments do not include income replacements such as sick leave or other paid time off paid by an employer.  Disaster relief payments cannot be used to replace normal wages.

What expenses might be eligible as a qualified disaster payment with respect to COVID-19?

Employers may pay for, reimburse, or provide “in kind” benefits reasonably believed by the employer to result from the COVID-19 federally declared disaster, including (but not limited to):

    • Over-the-counter medications, hand sanitizers, home disinfectant supplies
    • Childcare or tutoring due to school closings,
    • Work-from-home expenses (like setting up a home office, increased utilities expense, higher internet costs, printer, cell phone, etc.),
    • Increased costs from unreimbursed health-related expenses and
    • Increased transportation costs due to work relocation (such as taking a taxi or ride-sharing service from home instead of using public mass transit)
Must employers have a written plan to make qualified disaster payments to employees?

No. But having a written program for disaster payments is recommended so employers can inform their employees about the parameters of the reimbursements.

The employer should determine who will be eligible to participate in the program and how it’ll grant “reasonable assistance” accordingly.

Is there a cap on how much an employer can provide to an employee as a qualified disaster payment?

No. Legislation does not limit the amount or frequency of qualified disaster payments that can be made by an employer to any individual employee.

By taking advantage of the reimbursement provisions and providing disaster relief payments, companies support and encourage workers who have endured many challenges through the pandemic. Compounded with the challenges of finding qualified employees in today’s employment market, implementation of a reimbursement program is a great way to show employees how much you care about them.

Contact one of our experts for more information on how we can best serve you.

Disclaimer: This article is for informational purposes only and should not be considered tax advice. You should speak with a qualified tax advisor at MBE CPAs to determine how qualified disaster relief payments may apply to your specific situation.

 

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MBE CPAs PPP2 Qualification resource sheet can be downloaded here.