IRS Provides Important Guidance for Employer Leave Programs for Donations to Aid Ukraine
Since the Russian Federation invasion of Ukraine on February 24, 2022, many employers have adopted or are considering adopting employer leave-based donation programs to aid citizens and residents of Ukraine, persons working, traveling, or currently present in Ukraine, or refugees from Ukraine. On May 19, 2022, the IRS issued Notice 2022-28, which provides important guidance on the federal income and employment tax treatment of cash payments made by employers to charitable organizations under these programs. The guidance is similar to the guidance in Notice 2001-69, as modified and superseded by Notice 2003-2, on charitable donations made after the September 11, 2001 terrorist attacks.
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 to aid the victims of the invasion. The organizations must qualify as charitable organizations under Section 170(c) of the Internal Revenue Code. Payments made before January 1, 2023 will not be treated as gross income, wages, or other compensation to the employees. Similarly, employees electing or who have the opportunity to elect to forgo the leave that funds the payments will not be treated as in constructive receipt of taxable income. Employers should not include the payments in Boxes 1, 3, or 5 of the electing employee’s Form W-2. Electing employees are not eligible for a charitable contribution deduction under Code Section 170 for the value of the forgone leave.
An employer can deduct the payments as charitable contributions under Code Section 170, or as business expenses under Code Section 162, if the employer otherwise satisfies the requirements of the applicable section.
Employers should consider conducting the appropriate due diligence to ensure that the donee organization is a charitable organization under Code Section 170(c), and that the organization will use the payments to aid the victims of the invasion.