IRS: Employee leave donations can be made to Ukraine

If your company has been thinking about creating a leave donation program to help the victims of Russia’s invasion of Ukraine, the IRS has just approved it.

In Notice 2022-28, the IRS issued guidelines for employers wishing to adopt a leave donation program so their employees can provide aid to Ukrainian citizens/residents, refugees and individuals working or traveling in Ukraine who are dealing with loss of life, shelter, food, medical care or jobs as a result of the war.

In an employer leave-based donation program, an employee can elect to forgo vacation, sick or other paid personal leave and authorize the employer to donate the cash value of the time off to qualified charitable organizations.

And it won’t make extra work for Payroll because the donations won’t be treated as gross income or employee wages/compensation by the IRS.

This applies to cash donation payments you make on behalf of employees before Jan. 1, 2023, to organizations that qualify under tax code Sec. 170(c).

The IRS noted that President Biden extended an executive order that established a national emergency with respect to actions and policies of Russia that threatened Ukraine’s peace, stability, sovereignty and territorial integrity. In addition, the Department of Homeland Security announced that it has designated Ukraine for Temporary Protected Status.

Leave donations at tax time

Important things to keep in mind if you’re launching or considering a leave donation program for Ukraine:

• Your business can deduct these cash payments as either a business expense or as a charitable contribution deduction.
• Employers shouldn’t report the amount of leave donation in boxes 1, 3 (if applicable) or 5 of a participating employee’s Form W-2 at year-end.
• Since leave donations aren’t considered income, employees need to know that they’re not allowed to be deducted as charitable donations on their personal income tax returns.
• An employer may deduct qualified employer leave-based donation payments under the rules of Sec. 170 or Sec. 162 as long as it otherwise meets the respective requirements of either option.

Also, the details concerning your employer leave-based donation program are worth recording in your company’s environmental, social and governance portfolio.