IRS Allows Tax-Favored Paid Leave Donation Programs for Ukraine Relief Through 2022

(Parker Tax Publishing June 2022)

The IRS provided guidance on the tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the Russian invasion of Ukraine (i.e., employer leave-based donation payments). Specifically, the IRS advised that employer leave-based donation payments made before January 1, 2023, will not be treated as gross income, wages (or compensation, as applicable) of the employees, and employees electing or with an opportunity to elect to forgo leave that funds such payments will not be treated as having constructively received gross income or wages (or compensation, as applicable). Notice 2022-28.

The further invasion of Ukraine by the Russian Federation which began on February 24, 2022 (i.e., the further Russian invasion of Ukraine), has caused widespread loss of human life and other loss to the citizens and residents of Ukraine, including loss of shelter, food, medical care, and jobs. On March 2, 2022, President Joe Biden announced a continuation of the national emergency with respect to Ukraine, as established in previous executive orders, because certain actions and policies of the Russian Federation further threaten the peace, stability, sovereignty, and territorial integrity of Ukraine. Additionally, the Department of Homeland Security designated Temporary Protected Status for Ukraine.

Employers may have adopted or may be considering adopting employer leave-based donation programs to aid citizens and residents of Ukraine; individuals working, traveling, or currently present in Ukraine; or refugees from Ukraine (collectively, victims of the further Russian invasion of Ukraine). Under employer leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for their employers making cash payments to charitable organizations described in Code Sec. 170(c). Cash payments made by an employer to Code Sec. 170(c) organizations under an employer leave-based donation program are referred to as "employer leave-based donation payments."

On May 19, the IRS issued Notice 2022-28 to provide guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine. This guidance is similar to the guidance provided in Notice 2001-69 regarding charitable relief following the September 11, 2001, terrorist attacks.

Under Notice 2022-28, employer leave-based donation payments made by an employer before January 1, 2023, to Code Sec. 170(c) organizations to aid victims of the further Russian invasion of Ukraine (i.e., qualified employer leave-based donation payments) will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Similarly, employees electing or with an opportunity to elect to forgo leave that funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable).

Compliance Tip: Employers should not include the amount of qualified employer leave-based donation payments in Box 1, 3 (if applicable), or 5 of the electing employees' Form W-2.

According to the IRS, electing employees are not eligible to claim a charitable contribution deduction under Code Sec. 170 for the value of the forgone leave that funds qualified employer leave-based donation payments. The IRS also noted that an employer may be able to deduct qualified employer leave-based donation payments as charitable donations under Code Sec. 170 or as ordinary and necessary trade or business expenses under Code Sec. 162 if the employer otherwise meets the respective requirements.

For a discussion of charitable donation deductions by businesses, see Parker Tax ¶93,100. For a discussion of ordinary and necessary trade or business expenses, see Parker Tax ¶90,100.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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