Puerto Rico is still reeling from the after effects of Hurricanes Irma and Maria, with much of the island still without power. It was almost two months before the Houston reservoirs discharged the record rainfall brought on by Hurricane Harvey. Suffice it to say that the areas that were slammed by the summer of 2017 are still on the road to recovery.
As these “once-in-a-lifetime” disasters seem to be growing in abundance, Americans are rushing to help the affected areas. To make it easier for charitable individuals to provide meaningful help, there is incentive for their employers to lend a hand, in the form of employer-sponsored relief programs.
There are four types of relief programs that exist that offer tax advantages to companies to provide assistance to disaster relief areas. Employers and their employees can donate cash or even accrued time off to assist those impacted by these storms.
The four programs are: Charitable Leave Donation Programs; Disaster Assistance Leave Banks; Qualified Disaster Relief Programs; and Employer-Sponsored Charitable Organizations.
The first two are similar to programs that exist in many school districts around the country, whereby teachers can donate unused leave time to a colleague who may be going through a family emergency. The only difference between the first two programs is that Charitable Leave Donation Programs provide broad-based relief to victims of disasters - that is, giving employees time to go to affected areas - while the Disaster Assistance Leave Bank assists an employer whose own employees have been directly impacted by a major disaster. The disaster must qualify with the IRS to receive the tax benefits.
But the most commonly used of these programs is the Qualified Disaster Relief Program. I recently spoke to David R. Fuller, a partner at Morgan Lewis, who explained just how widespread it is.
“Generally, three of these programs are not that widespread, but the one program that is far more common is the Qualified Disaster Relief program,” Fuller told me. “Whether employers know that they’re using it or not may sometimes come into question, but it’s simple, it’s effective, it’s immediate, and it’s based on statutes.”
Just how simple can these programs be? Fuller gave me one example of a company that had employees who were impacted by Hurricane Harvey. The company loaded up Visa gift cards and provided them to the employees almost immediately.
The idea was to provide fast relief before the company could help them address their individualized needs with greater, more personalized resources. The tax benefits the employer receives come in the form of a business expense deduction and FICA exclusion. Employees, meanwhile, can claim income and FICA exclusions.
“When you’re an employee and you receive any kind of benefit from an employer, it’s taxable. The IRS maintains a position that gift cards are the same as money, and that even a penny is taxable, so obviously, this is a very significant exception to the general rule,” Fuller explained.
With all that in mind, it’s natural to let the mind wander toward the more cynical side of the equation. Are companies simply lending a hand because of the tax savings they get? Fuller says, at least with his clients, that’s not the case, and that the actions are completely altruistic.
“While these programs do generate tax-favored treatment, I can’t think of one of our clients who has adopted one of these programs because of the tax benefits,” he said. “The first thought is, ‘How can we help?’ The tax treatment is something you look at after the fact.”
So as our fellow Americans try to forge a path back to a life of normalcy, there are plenty of ways to lend a hand. And, in this particular case, the IRS actually makes the process a little easier.