The IRS issued guidance to extend the allowance of donations of vacation, sick, or personal leave through a leave-based donation program to be made to charitable organizations for victims of COVID-19 before January 1, 2022 [Notice 2021-42, 2021-29 IRB 19].
Treatment of Payments
Cash payments an employer makes to a charitable organization, described in 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 COVID-19; and (2) paid to the IRC §170(c) organizations before January 1, 2022.
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.
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Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Payroll Information Resources for the APA.