The SSA/IRS Reporter, Winter 2019, contains an article written by APA on employer leave sharing programs. The programs are defined as any employer plan or policy that offers employees the option to donate their accrued or unused paid leave to other employees whether to specific individuals or into a pool that employees can tap.
The article, “Employer Leave Sharing Programs,” explains that donated leave is not treated as wages subject to income and payroll taxes for donating employees only under IRS qualified programs. This means the donated leave is used for medical emergencies or to assist in recovery after a major disaster.
A qualified medical emergency includes a number of conditions. The bank or pool must be open to all employees not designated to a specific employee. Employees must use all of their other paid leave to qualify. The employer’s program must be written with a clear process for employees to request leave and to donate.
Qualified disaster relief also includes conditions. For example, the event must be a presidentially declared major disaster not an event impacting one individual, such as a house fire. The employee or a family member must encounter the hardship in a manner that requires the employee to be absent from work and there is a time limit after the major disaster for employees to take advantage of the leave.
Employees donating their paid time off do not pay income and payroll taxes for the value of their contribution. The employees receiving the benefit are subject to taxes. When employees donate, they cannot also take a tax deduction on their Form 1040, U.S. Individual Income Tax Return.
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