The Coronavirus Aid, Relief and Economic Security (CARES) Act has changed how we work and live our daily lives, as well as how we view taxes and benefits available to tax payers and businesses. One tax provision gaining light due to this dilemma is Section 139 or “qualified disaster relief payments.” Section 139 relief was enacted after the September 11 attacks of 2001. This disaster relief plan makes certain payments tax-free to employees and fully deductible to the employer. These payments are not included in employee wages and are therefore not subject to Social Security or FICA taxes. Payments can be made to employees to manage the expenses associated with the COVID-19 crisis. For the payment to be deductible to the employer, it cannot be reimbursed by another source, such as insurance.
Eligible Section 139 Expenses
Work From Home Employee Adaptation Costs
With people moving from working in the office to now working in their home office, additional expenses are being incurred. Costs that can be paid by an employer to an employee include the cost of computers, monitors, printers and office supplies. It can also include the increased cost of utilities related to working from home. Employers can also reimburse employees for desks and office chairs to convert their home to a workspace. With recent tax changes, employees are no longer allowed to deduct unreimbursed employee expenses on their tax return, so this is a way for employers to help employees to alleviate some of the costs of adapting their home to their new working conditions.
Traditionally, education assistance reimbursement by employers was limited to direct payments related to current coursework in a qualified educational program. With the CARES Act, this benefit has been expanded to allow student loan payments, as well. On August 8, 2020, school loan repayments were suspended until December 31, 2020. Some statistics cite that less than 11% of people with student loans have continued to make payments during 2020. This statistic shows many Americans are falling behind on their payments and would really appreciate this benefit from their employer. The limit of this benefit to be paid by an employer is $5,250 per employee for 2020. To take advantage of this benefit, employers who already maintain an educational assistance program will need to amend their program, and employers who do not already maintain such a program will need to adopt one. If you are interested in the details for this program, please feel free to reach out to us to discuss the details of putting together the plan.
Healthy Living Expenses
Employers can also assist employees with COVID-19 preventative costs. These costs are ones that are not covered by health insurance and can include hand sanitizer, masks, and over-the-counter medication. It can also include out-of-pocket employee expenses for health care, such as deductible and related unpaid medical expenses. Staying safe is a paramount concern, so employers can help enhance employee well-being by alleviating the costs to stay healthy.
Additional Payments By Employers That Are Not Tax-Free to Employees (But Still Worth Noting)
Expanded Sick Leave
If an employee is unable to work because they have been diagnosed with the coronavirus, or they are taking care of a family member who has been diagnosed with it, they are eligible for up to 10 days of medical leave. This medical leave is for up to 80 hours at $511 per day, or a total of $5,110. The wage paid must be at the employee’s regular rate of pay or a maximum of $5,110, whichever is less.
COVID-19 and Daycare or School Closure Payments
If your dependent child’s school or daycare is closed due to the coronavirus, and you are unable to work because you are providing care, you may also qualify for benefits from your employer. The benefit is paid for up to two weeks (80 hours) at two-thirds of your regular wage, up to $200 per day. The maximum benefit is $2,000 total.
It is important to note that with these benefits, it is the employer that benefits the burden of record-keeping. There are no guidelines for a waiting period or payment amount, but it should be noted that the payment should not exceed actual expenses paid. The employer should keep records of the policies they implement for payment, such as how much is to be paid and which employees receive payments, as well as dates that payments are made. The burden of record-keeping is that of the business, so deductibility depends on the records kept. These plans do not have to be uniform among all employees, which means that not every employee needs to receive home adaptation costs. The deadline for payments for 2020 expenses is December 31, so if your business is looking to assist employees, now is the time to act.
If you have questions on payments to employees due to the changing environment of business, we are here to help. Please contact Anna Lautenbach at Walkner Condon Tax Services to set up your consultation.