In response to an extreme need for charitable relief by victims of the Hawaiian wildfires that began on August 8, 2023, the IRS has issued Notice 2023-69 (the “Notice”) to provide guidance under the Internal Revenue Code (“the Code”) on the federal income and employment tax treatment of employees’ leave-based donations for victims of the wildfires.
Law. Under employer leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for their employers making cash payments to charitable organizations described in Code Section 170(c). Cash payments made by an employer to Code Section 170(c) organizations under an employer leave-based donation program are referred to as “employer leave-based donation payments.”
Notice 2023-69. Under the Notice, employer leave-based donation payments made by an employer before January 1, 2025, to Code Section 170(c) organizations intended to aid victims of the wildfires will not be treated as gross income or wages (or compensation, as applicable) of the employees. Similarly, employees electing, or who have an opportunity to elect, to forgo leave that funds the qualified employer leave-based donation payments will not be treated as having constructively received the gross income or wages (or compensation, as applicable).
Employer Takeaway. Based on the foregoing, employers should not include the amount of qualified employer leave-based donation payments in Box 1, 3 (if applicable), or 5 of the electing employees’ Forms W-2, and electing employees are not eligible to claim charitable contribution deductions for the value of the forgone leave. An employer may deduct qualified employer leave-based donation payments under the rules of Code Section 170, or the business expense rules of Code Section 162, if the employer otherwise meets the requirements of either section of the Code.
The Notice is available at: https://www.irs.gov/pub/irs-drop/n-23-69.pdf