December 3, 2020

Internal Revenue Code (IRC) §139 Qualified Disaster Relief Payments

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Employers may now be able to immediately provide Internal Revenue Code (IRC) §139 qualified disaster relief payments. On March 13, 2020, the Coronavirus National Emergency declaration was made by President Trump under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). This declaration arguably positions employers under the scope of IRC §139—potentially providing much-needed relief to employers and employees.

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Specifically, employers may be able to reimburse non-insured, non-wage replacement benefits that they reasonably believe result from the COVID-19 pandemic. Such expenses are likely numerous and could pertain to expenses such as:

  • Medical expenses
  • Childcare and/or tutoring resulting from school closings
  • Increased home expenses incurred from telecommuting (e.g., home office set-up, internet, office equipment)
  • Mobile phone expenses

Moreover, in the IRC §139 context, employees are usually not even burdened by a substantiation requirement regarding claimed expenses.

Significantly, employees receiving IRC §139 qualified disaster relief payments are not subject to federal tax on those payments, and the payments are fully deductible by the employer. Generally, state tax treatment of IRC §139 qualified disaster relief payments conforms to federal treatment.

This is a relatively obscure code section—but it has incredible potential to help employers and employees.

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