When the COVID-19 pandemic was declared a national emergency earlier this year, it triggered Section 139 of the Internal Revenue Code. Under Section 139, employers can provide tax-free payments or reimbursements to employees for certain expenses associated with a qualified disaster — such as the COVID-19 crisis.
Section 139 delivers a straightforward way for you to assist employees facing hard times because of the pandemic. However, your payments must be "qualified" under the IRC.
What are qualified disaster relief payments?
Per IRC Section 139(b), qualified disaster relief payments include amounts provided to employees to help them pay for "reasonable and necessary personal, family, living, or funeral expenses incurred as a result of the qualified disaster."
Which disaster relief payments are tax free for COVID-19 purposes?
When it comes to the COVID-19 pandemic, qualified disaster relief payments may include:
Which payments are excluded?
What makes a qualified disaster relief program 'simple'?
Despite requiring hardly any record-keeping obligations, it's best practice to adopt a written plan outlining the parameters — including eligibility and payment criteria — of the disaster relief program.
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