Many employers have a number of employees who were affected by the August 2016 flooding event in Louisiana. These employers are looking for means to assist their employees in recovering from this significant disaster. Employers have a number of options for providing disaster relief assistance to their employees.
A number of employers are simply collecting funds internally or raising funds through gofundme™ or similar online fundraising platforms.
These types of internal or private fundraising methods are generally simple to set up and operate. For tax purposes, these types of fundraising efforts are generally treated as non-deductible gifts to the employees from whoever makes the contributions to the funds. Generally, true gifts are not treated as taxable income to the employees. However, under certain circumstances, an employee may not be taxed on payments that are considered “qualified disaster relief payments” received from employers or other sources under Section 139 of the Internal Revenue Code.
Qualified disaster relief payments within the meaning of Section 139 include payments received (regardless of source) for the following expenses:
- Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster;
- Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a qualified disaster (a personal residence can be a rented residence or one owned);
- Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a qualified disaster.
Qualified disaster relief payments do not include payments for expenses otherwise paid for by insurance or other reimbursements. Furthermore, qualified disaster relief payments do not include income replacement payments such as payments for lost wages, lost business income or employment compensation. Generally, a qualified disaster includes several types of disasters, one of which is a Presidentially declared disaster. The August 2016 flood has been declared a qualified disaster in East Baton Rouge, Livingston and Ascension Parishes and several other surrounding parishes.
Often, donors wanting to make gifts to assist in relief situations will want to contribute to a charitable organization to obtain the benefit of an income tax charitable deduction or for other reasons (for example some private foundations or other charities can only make gifts to other charities). In the disaster relief context, an employer can establish its own charitable organization under Section 501(c)(3) of the Internal Revenue Code to provide qualified disaster relief payments to its employees. However, this requires the establishment of a non-profit organization that will qualify as either a private foundation or a public charity depending upon the funding source. Furthermore, the qualification of the organization as a Section 501(c)(3) charity must be recognized with the IRS which requires some time (although the qualification can often be obtained on an expedited basis) and requires some costs to establish the charitable organization.
For those employers desiring to set up a charitable entity to make qualified disaster relief payments and give the donors the benefit of a charitable deduction, the Baton Rouge Area Foundation (a Section 501(c)(3) charity) will set up a fund as part of the Baton Rouge Area Foundation which can provide qualified disaster relief payments for an employer’s employees. This allows an employer to set up a relief fund for which the contributions are deductible without incurring the costs and taking the time necessary to set up its own stand-alone fund. The fund is administered by the Baton Rouge Area Foundation. Anyone interested in establishing a fund with the Baton Rouge Area Foundation can contact Elizabeth Hutchison at firstname.lastname@example.org or 225-381-7080 and can read more information about this option at www.employees1st.org.