Update Applicable to:

All employers with employees performing work in the state of Hawaii.

What happened?

The IRS provided guidance for employers whose employees forgo sick, vacation or personal leave to aid victims of the wildfires that began in parts of Hawaii on Aug. 8, 2023.

What do employers need to do?

Employers should consult with accounting or a tax professional, and seek legal counsel, if needed, for adequate implementation of said programs and appropriate deductions.

What are the details?

Leave-based donation payments are not taxable to employees as compensation if paid before Jan. 1, 2025; leave-based donation programs are also one method for providing support to disaster victims. 

In response to the extreme need for charitable relief for victims of wildfires beginning on August 8, 2023, in the State of Hawaii, employers may have adopted or may be considering adopting leave-based donation programs (because of 2023 Hawaii Wildfires).

Under employer leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave (but not regular pay) in exchange for their employers making cash payments to charitable organizations (section 170(c) organizations) for the value of that leave providing aid to individuals harmed by certain disasters. Cash payments made by an employer to organizations under an employer leave-based donation program are referred to as “employer leave-based donation payments.”

Generally, cash payments are treated as wages or compensation to employees for federal income tax and employment tax purposes under the constructive receipt or assignment of income principles. However, in limited circumstances (such as this one), the IRS will grant relief so that the amount is not taxable to the employees that forego their paid leave.

According to the Notice, employees’ donated leave will not be treated as wages for income or payroll tax purposes if their employers’ cash payments are made to section 170(c) charitable organizations before Jan. 1, 2025, to aid victims of the 2023 Hawaii wildfires.

For more information, please see the links below:

IRS: Article 1, IRS Notice 2023-69, IRS newsroom

Law firm: Article 1

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