Expiration of the U.S. COVID-19 Emergency – Tax Implications for the Mobility Industry

The Biden administration’s ending of the COVID-19 national emergency in the United States also concludes several tax-related benefits permitted on qualified disaster relief payments since March 2020. 

With the expiration on 11 May 2023 of the national emergency declared in the United States for the COVID-19 pandemic, the end of this period also brings with it the conclusion of several tax-related benefits that have been permitted since March 2020. These benefits, permitted under IRC Section 139, have allowed for several categories of mobility-related expenses to be treated as non-taxable during the national emergency. With the conclusion of the emergency, these items must now be considered as taxable benefits if provided to an employee; however, generally speaking, companies can still treat most expense reimbursements as business related (assuming the amounts paid are reasonable and there is a business purpose for the expense) and remain deductible by the company.  

To find out more about what this means for the workforce mobility industry, we asked David Oltman, chief compliance officer at Ineo and member of Worldwide ERC’s Tax Policy Forum, to share his insights on the impact of this change and what it means for the workforce mobility industry. 

Question: What is IRC Section 139, and what has occurred as result of it during the last three years? 

Oltman: IRC Section 139 refers to a section of the U.S. Internal Revenue Code that allows for adjustments to tax rules during a declared national emergency. Implemented following the 9/11 terrorist attacks, this section provides a mechanism for overriding the ordinary tax requirement that benefits provided to an employee by an employer are taxable. When then-President Donald Trump declared a national emergency related to COVID-19 in March 2020, this triggered provisions in Section 139 allowing payments resulting from a “qualified disaster” to not be considered income to the recipient unless they are either compensated by insurance or are replacements for regular wages. As a result, these items would not be defined as wages for purposes of employment tax reporting or for the W-2. These items would also be considered tax deductible by the employer during the emergency, resulting in huge tax saving opportunities for employers as well. 

Question: What were some of the areas that have been considered a “qualified disaster relief payment” under the code? 

Oltman: Under the code, the payment is considered any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses, or reasonable and necessary expenses to repair or rehabilitate a personal residence or repair, paid as a result of a “qualified disaster.”  

The provisions of Section 139 provided for payments covering a broad range of items to be considered as non-taxable, including: 

• Hand sanitizer and home disinfectant supplies; 

• Childcare or tutoring due to school closures; 
• Work-from-home expenses, including setting up a home office and increased utility expenses; 
• Higher internet costs and material purchases for printers and office supplies; 
• Temporary living expenses caused by the employee not being able to travel; 
• Commuting costs associated with higher costs for taking taxis or rideshare services instead of mass transit; and 

• Unreimbursed health-related expenses, such as co-pays and deductibles. 

What is the impact of this expiration on the workforce mobility industry? 

Oltman: Because of the opportunities afforded during the emergency under IRC Section 139, many companies have scrutinized their mobility-related expenses since 2020 to determine potential favorable tax treated and gross-up and tax savings. With the end of the emergency on 11 May, this now means that these reimbursements will now have to be treated as taxable and companies will need to review their programs yet again to determine the impact of this transition and any steps, if any, they need to take as a result.  

David Oltman is chief compliance officer at Ineo and a member of Worldwide ERC’s Tax Policy Forum.  

Michael T. Jackson is vice president of member relations and operations at Worldwide ERC.