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Tax Efficient Assistance For Your Employees: Qualified Disaster Relief Payments

Whilst much has been made of the Governments’ CARES act package aimed at small businesses, particularly the Paycheck Protection Program, ‘PPP’, and Emergency Injury Disaster Loans ‘EDIL’, comparatively little has been said about another measure employers can use to provide tax efficient assistance to employees during these uncertain times.

The President’s National Emergency Declaration of March 13th  categorized the Coronavirus outbreak as a ‘Qualified Disaster’, and means that employers can make use of Code Section 139.

Code Section 139 allows employers to make payments, known as Qualified Disaster Relief Payments to employees – crucially, these are not-taxable to the employee, and are tax deductible for the employer.

These payments must be considered reasonable & necessary and should be used to cover additional expenses that employees might have incurred as a result of the Coronavirus outbreak.

There is no cap on the dollar amount that can be paid, and interestingly, employees are not required to substantiate these expenses, nor do employees have to have a written plan in place.

A further benefit for employers is that such payments do not attract any payroll taxes, nor do they need be reported on payroll forms or 1099s, and unlike the PPP and EIDL loans, the administration of these payments is straightforward.

For more information on Code Section 139, please contact either Gareth Jones or Chris Osborn.