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COVID-19 and Tax-Free Qualified Disaster Relief Payments

Thursday, May 28, 2020 9:51 AM | Anna Matheson (Administrator)

Written by: Laura N. Solomon, Esq., Founder of Laura Solomon & Associates

On March 13, President Trump declared the COVID-19 pandemic to be a “qualified disaster” under the under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.  This designation means that employers and charities may make tax-free “qualified disaster relief payments” or reimbursements to employees and other individuals who have been affected by COVID-19.

Qualified relief payments can include:

  • Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of COVID-19
  • Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence, or repair or replacement of its contents, to the extent that the need is attributable to COVID-19 
  • Compensation for the death or personal injuries incurred as a result of COVID-19, by a company engaged in the furnishing, sale, or transportation as a common carrier
  • Payments to promote the general welfare or in connection with COVID-19, if paid by a federal, state, or local government, or agency or instrumentality 

These payments are not considered income to the recipient, need not be reported on a Form W-2 or 1099, and are fully deductible as business expenses of the employer.  Employers seeking charitable contribution deductions for their relief payments may also use charitable organizations and even donor-advised funds, for this purpose.

Charitable organizations can also make income tax-free qualified disaster relief payments, including payments to their employees if the payments are:

  • To a large (e.g. community) or indefinite (e.g. current and future employees) group affected by COVID-19, rather than a specific group of individuals, and
  • Based on an objective assessment of need. 

The IRS recommends that charitable organizations making qualified disaster relief payments maintain a qualified disaster relief policy or other records to show that the organization’s payments further the organization’s charitable purposes and that the victims served are needy or distressed.  Such documentation should include:

  • A complete description of the assistance provided
  • Costs associated with providing the assistance
  • The purpose for which the aid was given
  • The charitable organization’s objective criteria for disbursing assistance under each program
  • How the recipients were selected
  • The name, address, and amount distributed to each recipient
  • Any relationship between a recipient and officers, directors, or key employees of, or substantial contributors to, the charitable organization
  • The composition of the selection committee approving the assistance. 

For additional guidance on qualified disaster relief payments, see IRS Publication 3833.

Please let us know if you have questions or require assistance as you navigate qualified disaster relief payments or any other COVID-19 related legislation.  We will continue to highlight new legislation and other opportunities to support and provide relief to those impacted by COVID-19.

You can contact us at (610) 645-0992 or on our website www.laurasolomonesq.com.

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Moorestown, NJ 08057-0579

Phone: (267) 597-3817
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E-mail: info@pgcgp.org

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