As part of disaster relief, the IRS provides special relief that allows employees to donate their unused paid vacation, sick leave, and personal leave time to disaster relief efforts. However, the 2020 Disasters Tax Relief Act did not include this provision.

If the employer is participating, employees can donate any unused and paid vacation time, sick leave and personal leave. The employer will convert the donation to cash and donate it to disaster relief charitable organizations. The cash payment will not be treated as wages to the employee and the employer can deduct the amount donated as a business expense. Both the employee and the employer avoid payroll taxes on the donation.

However, since the income isn’t taxable to the employee, the employee will not be allowed to claim the donation as a charitable deduction on the employee’s tax return. Even so, excluding income is often worth more as tax savings than a potential tax deduction, especially if the employee generally claims the standard deduction or the employee is subject to AGI-based limitations.

The IRS will specify the period of time the donations can be made.

On March 13, 2020, the President issued an emergency disaster declaration under the Stafford Act as a result of the coronavirus pandemic. The disaster area covers all 50 states, the District of Columbia, and five U.S. Territories. The IRS is providing special relief that allows employees to donate their unused paid vacation, sick leave, and personal leave time to COVID-19 relief efforts. This special charitable provision was first announced in Notice 2020-46 applying to donations made after March 13, 2020, and before January 1, 2020, and was subsequently extended through 2021 by Notice 2021-42.

On March 2, 2022, President Biden announced a continuation of the national emergency with respect to Ukraine, as established in previous executive orders, because certain actions and policies of the Russian Federation further threaten the peace, stability, sovereignty, and territorial integrity of Ukraine. On March 3, 2022, the Department of Homeland Security announced that it has designated Ukraine for Temporary Protected Status.

Thus, employer leave-based donation payments made by an employer before January 1, 2023, to a qualified U.S. charitable organization to aid victims of the further Russian invasion of Ukraine will qualify for the disaster relief provision under the rules of IRC Sec 170 or the rules of IRC Sec 162 if the employer otherwise meets the respective requirements of either section of the Code.

Employer leave-based donation payments are not treated as gross income or wages (or compensation, as applicable) of an employee. Thus, the employee will not be taxed on the forgone vacation, sick, or personal leave payment, but since it is not taxable, the employee cannot also deduct it as a charitable contribution.

Per IRS Notice 2022-28, employers who make a donation equivalent to the amount the employee has forgone can deduct the contribution and avoid the employer share of payroll taxes that would otherwise be due on paid employee vacation, sick, or personal leave. An employer may deduct qualified employer leave based donation payments under the rules of IRC Sec 170 – Charitable Contributions or the rules of IRC Sec 162 – Trade or Business Expenses – if the employer otherwise meets the respective requirements of either section of the Code.

This opens a tremendous opportunity for employees to be able to donate to Ukrainian relief efforts. Employees wishing to participate need to check with their employer to see if the employer is participating in this voluntary program.