UPDATE: You’ve just been given more time to keep your coronavirus leave donation program running. IRS extended the allowance of donations of vacation, sick or personal leave through a leave-based donation program through the end of 2021 in IRS Notice 2021-42.
If your company wants to set up a program to let employees donate leave to victims of the coronavirus pandemic, go right ahead. You have the green light from IRS.
IRS Notice 2020-46 gives you specifics on how employers can administer such leave donation programs.
Here’s what you need to know to help your employees be charitable while you remain in compliance.
Leave donation: What’s in bounds, what’s not
This doesn’t saddle your Payroll team with a lot of extra work. The donations you make on behalf of employees will not be treated as compensation.
As long as these leave donation payments are made to Sec. 170(c) organizations specifically for COVID-19 relief before Jan. 1, 2021, they don’t count as compensation to the employee. And they won’t have to be reported on the individual’s Form W-2 at year-end, IRS confirmed.
Implications at tax time
You must also make sure employees understand that since leave donations won’t be treated as income, they can’t deduct them on their personal taxes later.
But you know who can deduct them? Your company.
IRS clarified in this announcement that employers may deduct these cash payments as a business expense or as a charitable contribution deduction … as long as you otherwise meet the respective requirements of either option.