Russia’s invasion of Ukraine has caused a widespread humanitarian crisis. Some employers have established, or might choose to establish, a leave-based donation program to allow their employees to assist those affected by the crisis. On May 19, 2022, the IRS released Notice 2022-28, which includes guidance for tax-favorable treatment for employer leave-based donation programs that assist victims of the Russian invasion of Ukraine.
IRS notice on leave-based donation programs for Ukraine
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Employer leave-based donation programs
Under an employer leave-based donation program, employees may elect to forgo vacation, sick, or personal leave in exchange for their employers making cash payments of an equivalent value to one or more charitable organizations as defined under IRC Section 170(c). Absent specific guidance to the contrary, these cash payments generally are treated as taxable compensation to employees under assignment of income or constructive receipt principles. Over the years, the IRS has provided guidance allowing tax-favorable treatment for employer leave-based donation programs established to assist victims of disasters, including presidentially declared disasters (Notice 2006-59) and the COVID-19 pandemic (Notice 2020-46 and Notice 2021-42).
Notice 2022-28
Under the notice, victims of the Russian invasion of Ukraine include citizens or residents of Ukraine; individuals working, traveling, or currently present in Ukraine; and refugees from Ukraine. The guidance is applicable through the end of 2022. The tax ramifications of an employer leave-based donation program established under Notice 2022-28 are as follows:
- Cash payments made by an employer to one or more 170(c) organization(s) are not included in the gross income or wages (for income tax or Federal Insurance Contributions Act tax purposes) of employees who funded the payments with forgone leave.
- Employees who are provided with an election to forgo leave (to fund employer payments to 170(c) organizations) are not considered to be in constructive receipt of any amounts relating to such leave regardless of the election made by such employees.
- Employees who elect to forgo leave are not entitled to claim a charitable contribution deduction for the value of the forgone leave.
- An employer that makes cash payments to one or more 170(c) organizations may be able to deduct such payments under the rules of IRC Section 170 or IRC Section 162 if the payments otherwise meet the requirements of the applicable section.
Looking ahead
Employers wanting to provide employees with a noncash, tax-favorable mechanism for assisting victims of the Ukraine crisis should consider establishing an employer leave-based donation program. While Notice 2022-28 provides tax-favorable treatment of these programs for federal tax purposes, employers should consider the possible state and local tax ramifications of such programs before establishing one.
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