By Richard A. Huffman, CPA, MST
The national emergency declaration on March 13 triggered a tax benefit which allows employers to make non-taxable qualified disaster relief payments to employees for reasonable and necessary expenses resulting from the coronavirus pandemic.
Reimbursable expenses excludable from employee taxable income are as follows:
- Unreimbursed medical expenses including co-pays, deductibles, vitamins and supplements
- Increased expenses associated with being quarantined at home (e.g., increased utilities and home office expenses)
- Home office expenses include expenses associated with setting up or maintaining a home office such as enhanced internet connections, computer monitors, laptops, printers, office supplies, etc.
- Housing for additional family members (e.g., transportation and living expenses for college students returning home including duplicate meal expenses)
- Nonperishable food purchases/reserves
- Increased childcare expenses
- Expenses to enhance mental health and physical well-being from social distancing such as meditation apps and home health fitness
- Alternative commuting means in lieu of mass transit
Due to the extraordinary circumstances surrounding a qualified disaster, there is no dollar limit to what qualifies just as long as the expenses in question are reasonable and necessary with respect to the coronavirus. Furthermore, employees are not required to account for or substantiate actual expenses in order to qualify for the exclusion and payments are not subject to discrimination testing.
With generous tax benefits and easy administration, qualified disaster relief payments are a valuable benefit that all employers should consider when trying to respond to the adverse financial impact that the coronavirus has on its employees.
If you have any questions, please contact your WFY tax specialist or email us at firstname.lastname@example.org.
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