IRS Says Donations Made in Lieu of Leave Do Not Count as Compensation

Chris Gaetano
Published Date:
Jun 12, 2020
The IRS has issued guidance on how employers should treat cash payments made through leave-based donation programs. The IRS noted that, since the global pandemic, certain employers have adopted programs whereby employees can opt to forgo sick leave or vacation days in exchange for a cash donation to a charity that aids COVID-19 victims.

The IRS said these payments will not be counted as wages or compensation otherwise includable in the employees' gross income, provided that the donation is made to an applicable nonprofit that provides relief for victims of COVID-19 in the affected geographic areas, and that the payment is made before the beginning of next year.

It added that an employer may deduct these cash payments under the rules of Section 170 of the Internal Revenue Code or the rules of Section 162, if the employer otherwise meets the respective requirements of either section.

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