Question:

My son told me that his employer allowed him to donate a week of unused vacation time to help victims of Hurricane Katrina. I asked my employer if I could donate a few days and they did not know how that would be possible. I was told that if I would do the research, they would be happy to start such a program. Do you have any information about how an employer could allow employees to donate unused paid leave to help the victims of Hurricane Katrina?

Answer:

The IRS is offering employees and employers a special opportunity to help victims of Hurricane Katrina. Employees can donate their unused leave in exchange for their employer making cash contributions to a qualified tax-exempt organization providing help to Hurricane Katrina victims. Recognizing that this extraordinary disaster will have long-term consequences, the IRS will continue the favorable tax treatment for payments made through December 31, 2006.

The donation of leave provides employees with a way to help Hurricane Katrina victims either as an alternative, to or in addition to making cash contributions on their own. Many employees have extra vacation, sick or personal leave balances but do not have the financial resources to make a monetary donation. Other employees just want to do something more for the Hurricane Katrina relief effort. Participation in a leave-donation program is simply another avenue for helping the hurricane victims go about the difficult task of rebuilding their lives.

There are no formal requirements, nor is IRS approval necessary, for an employer to adopt a leave-donation program. Employers can tailor their programs to fit with their existing payroll and accounting systems, just as long as the employer’s cash payment is made by December 31, 2006, to a qualified tax-exempt organization specifically for the relief of victims of Hurricane Katrina.

The IRS has not established any special requirements for this type of donation program, other than those rules, which already exist for payroll and accounting books and records. For example, employers should document the leave that is forgone by their employees, the amount of the cash payments made to qualified tax-exempt organizations for the relief of victims of Hurricane Katrina, the names of the donee organizations, and the dates that the cash payments were made.

Employers should value the forgone leave based on the employees’ normal rate of compensation. For example, if an employee earns $10 per hour and donates eight hours of leave, the employer should give $80 in cash to the qualified tax-exempt organization for the eight hours worth of forgone leave. Employers can match their employees’ donations or otherwise add as much as they wish to the amount attributable to their employees’ donations of leave.

Under a leave-donation program, employers may deduct cash payments to a qualified tax-exempt organization as charitable contribution deductions or business expense deductions. For purposes of these deductions, all money donated pursuant to a leave-donation program will be treated as the employer’s money.

For this reason, employees do not have to pay taxes on the leave that they forgo under a leave-donation program, but they also cannot take a deduction for the leave that they donate. This is because, unlike making a cash donation directly to a charity, the leave-donation program does not use any of the employee’s taxable earned income, but the employer is instead seen as making the donation on the employee’s behalf.

If an employer decides to implement a leave-donation program, it should ensure that its employees are aware of the rules discussed above, and that they know the program is entirely voluntary.
– – – – – – – – – – – – – – – – – – – – – – – – – –
Back to Menu- Work Place Law 2005 Articles