IRS Issues Notice Regarding Charitable Cash Donations

The IRS issued a notice guiding employers using employee leave to make cash donations to charitable organizations working to help victims of the COVID-19 pandemic.

Earlier this month, the Internal Revenue Service (IRS) issued notice 2020-46 guiding employers who have adopted or may be considering adopting a leave-based donation program where employees elect to forgo sick, vacation, or personal leave because of the COVID-19 pandemic in exchange to receive cash payments that the employer makes to charitable organizations. Employers can use that revenue to make cash payments as donations to section 170(c) charitable organizations working to aid victims of the pandemic. In so doing, the IRS advises that the employers should not treat such charitable cash payments as wages or compensation.

Employees who choose to forgo their leave to the employer are not to be treated as receiving the value of the leave as income and cannot claim a deduction, according to the IRS’ statement. However, employers may deduct these charitable cash payments as either a business expense or a charitable contribution deduction provided the employer meets the respective requirements of either section. Additionally, any cash payments made to charitable organizations must be made before 1 January 2021.

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How This Impacts Mobility

The IRS’s notice is the latest in a sequence of tax deductions and credits that impact employee benefit plans during the pandemic. In a time of much-needed economic recovery for businesses of all sizes, such tax guidance helps employers navigate a trying time. Worldwide ERC® will continue to provide you relevant updates, and should you have any questions regarding this notice, please reach out to our Vice President of Government Affairs, Rebecca Peters at rpeters@worldwideerc.org.

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