In May, the U.S. Internal Revenue Service (IRS) issued guidance allowing donations of vacation, sick, or personal leave through a leave-based donation program to be made to charitable organizations to aid citizens and residents of Ukraine; individuals working, traveling, or currently present in Ukraine; or refugees from Ukraine, collectively referred to as "victims of the further Russian invasion of Ukraine" [Notice 2022-28, 5-19-22].
Treatment of Payments
Cash payments an employer makes to a charitable organization, described in Internal Revenue Code (IRC) §170(c), in exchange for vacation, sick, or personal leave that its employees elect to forgo will not be considered gross income or wages of the employees if the payments are: (1) made to the IRC §170(c) organizations for the relief of victims of the further Russian invasion of Ukraine; and (2) paid to the IRC §170(c) organizations before January 1, 2023.
Similarly, the IRS will not assert that the opportunity to make such an election results in constructive receipt of gross income or wages by employees.
Electing employees may not claim a charitable contribution deduction under IRC §170 with respect to the value of the forgone leave excluded from compensation and wages.
Employers do not need to include the cash payment in Boxes 1, 3 (if applicable), or 5 of Form W-2, Wage and Tax Statement.
Jyme Mariani, Esq., is Senior Manager of Payroll Information Resources for the American Payroll Association.