Section 139 of the Internal Revenue Code excludes from a taxpayer’s gross income certain payment to individuals to reimburse or pay for expenses related to a “qualified disaster”. Covid-19 is a federally declared disaster.Payments from an employer to the employee would be considered tax-free to the employee (not reported on the employee’s W-2) and fully deductible on the employer’s tax return. Below is a list of some expenses that could be reimbursed, but isn’t all inclusive:
• Medical expenses not covered by insurance
• Health related expenses such as hand sanitizers and disinfectant
• Additional dependent care expenses (tutoring is included)
• Work from home expenses (costs incurred to set up a home office, including computer, printer, extra phone lines, internet installation, increased utility costs, etc. It also looks like the safe harbor calculation for the home office deduction may be used.)
• Transportation expenses due to closure of public transportation
• Caregiver and domestic service expenses
• Funeral expenses
• Legal and accounting expenses
A written policy is not required, but is suggested to outline specifics such as the type of expenses covered or not covered, the procedure for requesting payments, a limit on the amount of payments, etc.
Employers should view this situation as an opportunity to provide tax deductible, tax-free assistance as an additional benefit to their employees. Taking advantage of the qualified disaster relief payments is a way for employers to encourage employees to return to work despite new challenges and expenses and a way to build goodwill and help employees during this challenging time.
If you have questions about how this might benefit your situation, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.
By: Lori Shepard