Coronavirus Tax Relief: Treatment of Amounts Paid to Section 170(c) Organizations under Employer Leave-based Donation Programs to Aid Victims of the COVID-19 Pandemic

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The Department of the Treasury and the Internal Revenue Service have extended the treatment provided in Notice 2020-46 to leave-based donation programs and cash payments in connection with such programs that are made to section 170(c) organizations after December 31, 2020 and before January 1, 2022. See Notice 2021-42.

Under Notice 2020-46, as modified by Notice 2021-42, where employers have adopted leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer makes to charitable organizations described in section 170(c) of the Code (section 170(c) organizations). Cash payments an employer makes to section 170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo will not be treated as compensation to the employees or otherwise be included in the gross income of the employees if the payments are:

  1. made to the section 170(c) organizations for the relief of victims of the COVID-19 pandemic; and
  2. paid to the section 170(c) organizations before January 1, 2022.

Employees electing to forgo leave will not be treated as having constructively received gross income or wages. The amount of cash payments to which this guidance applies should not be included in Box 1, 3 (if applicable), or 5 of the Form W-2. Furthermore, employees may not claim a charitable contribution deduction under section 170 concerning the value of forgone leave. Only the employer may deduct these cash payments under section 170 or section 162 rules, if the employer otherwise meets the respective requirements of either section.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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