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IRS Guidance on Employer Leave-Based Donation Programs That Aid Victims of The Wildfires in Hawaii

08 Nov

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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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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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