The professionals at Broussard Poché, LLP want to help make employers aware of the provisions under IRC section 139 with respect to employee disaster relief payments. Under this code, employers may make a tax free disaster relief payment to employees for reimbursement or payment of reasonable and necessary expenses as a result of a qualified disaster.
Qualified expenses include:
- Medical and dental
- Transportation – replacement or repair of
- Housing – replacement or repair of
- Personal property – replacement or repair of
- Funeral expenses
Qualified disasters include:
- Federally declared disaster
- Disaster from an accident involving a common carrier
- Disaster which results from military or terrorist action
- Disaster which is determined to be catastrophic by the Secretary of the Treasury or his/her delegate
Qualified disaster relief payments are exempt from payroll taxes; therefore, your employee gets to use the full payment for expenses and the employer doesn’t have any payroll tax burden as well. In addition, no substantiation is required from the employee and employers can take a business deduction for the payment.
It’s important to note, any payments for loss of work will be subject to normal payroll taxes. Please contact your professional tax advisor should you have any questions regarding these payments.