IRS Guidance on Employer-Based Leave Donation Programs for COVID-19 Relief Organizations

In recent years, it has become the norm for the IRS to respond to a federally declared disaster by issuing guidance enabling employers to establish “Leave Donation Programs,” which allow employees to “convert” accrued vacation, sick, or personal leave benefits into an employer-paid monetary donation to a charitable relief organization, without the employee being taxed on the value of donated leave.1 Therefore, it is not surprising, but certainly welcome, that the IRS recently issued Notice 2020-46 (the Notice) to allow employers to adopt the same type of employer-based Leave Donation Programs in response to the COVID-19 pandemic.

The Notice follows the same framework as previous Leave Donation Program guidance:

COVID-19 Leave Donation Program Structure

An employee with accrued paid leave time may elect to forego the use of some portion or all of the employee’s accrued paid leave time, in exchange for the employer making a cash donation (equal to the gross value of the accumulated paid leave time) to a charitable organization that meets the definition in Internal Revenue Code (Code) Section 170(c). The charitable organization must be one that provides relief for the victims of the COVID-19 pandemic in a geographic area for which the President has issued a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.2 The donation must be paid by the employer to the charitable organization before January 1, 2021.

Tax Implications for the Employee

Cash payments made to charitable organizations on behalf of employees who forego paid leave benefits under a COVID-19 Leave Donation Program are not considered wages, and the value of the foregone benefit is not included in an employee’s gross income as reported on the employee’s Form W-2.3 However, employees may not claim a charitable contribution deduction under Code Section 170 on their personal tax filings with respect to amounts donated through a COVID-19 Leave Donation Program.

Tax Implications for the Employer

The employer may deduct the cash charitable contributions made through a COVID-19 Leave Donation Program under Code Section 170 or 162, if the employer otherwise meets the requirements of the applicable Code Section.

Other Considerations

An employer evaluating whether to adopt a COVID-19 Leave Donation Program should consider a few other items:

  • If the employer’s leave policy has a “use it or lose it” provision, there may be an increased cost to the employer if employees who would otherwise lose accrued leave due to non-use instead elect to convert the unused leave time into an employer charitable donation under the program.
  • There may be additional state leave laws that influence when and how leave may be donated in states where the employer conducts business.
  • Although there are no specific documentation requirements to implement a COVID-19 Leave Donation Program, an employer implementing such a program may want to develop employee communication materials and donation election forms to use for the program.

Please contact your Faegre Drinker attorney with questions regarding this guidance.

1 For example, the IRS most recently issued such guidance in response to Hurricane Michael in 2018 and the California wildfires and Hurricanes Harvey, Irma and Maria in 2017.
2 Affected geographic areas include each of the 50 states, the District of Columbia, and five U.S. territories. See
3 Note that absent IRS exceptions such as the one outlined in the Notice, a program that allows employees to donate the value of accrued leave to charitable organizations results in taxable income to employees who choose to donate leave, even though the employee loses the ability to use the donated leave.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

About Author: Monica Novak

Monica Novak counsels tax-exempt and for-profit clients on the complex and diverse array of statutes and regulations that apply to employee benefit plans and executive compensation arrangements. She provides guidance and support in designing compliant benefit programs, and assists clients with corrective actions when appropriate to ensure ongoing legal compliance. Monica also represents clients in negotiating stock and asset purchase agreements and merger agreements, resolving potential benefit plan liabilities and integrating benefit plans in the aftermath of acquisitions. View all posts by

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