Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the Families First Coronavirus Response Act (Act). Qualifying wages are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage. For more information, please see the Department of the Treasury’s website.
A little-used existing provision of the tax law, Section 139, should allow employers to make “qualified disaster relief payments” to employees to assist in managing the COVID-19 crisis. Section 139 applies to any “federally declared disaster,” but has yet to be utilized for a national pandemic and there is currently some guesswork involved in identifying the expenses that will meet the definition of “qualified disaster relief payments.”
Payments are not for expenses that are otherwise compensated for by insurance, and payments of sick pay or family medical leave remain fully taxable to the employee. Any qualified payments would be tax-free to the employees, but fully deductible to the employer, provided the payment is to reimburse or pay the employee for “reasonable and necessary personal, family, living, or funeral expenses” incurred as a result of COVID-19. For more details, see the Forbes article “Little-Known Tax Law Allows Employers To Make Tax-Free Payments To Employees To Cover Covid-19 Expenses.”
Last updated: 3.26.20. This information in this communication is general in nature, and is not intended, nor should it be construed, as legal, accounting, tax or other professional advice rendered by GreenSlate, LLC. The reader should contact his or her attorney, CPA, or tax professional prior to taking any action based upon this information.