The IRS has released Notice 2022-28 which provides employer guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs for those employers who’ve adopted or may be considering adopting employer leave based donation programs to aid citizens and residents of Ukraine; individuals working, traveling, or currently present in Ukraine; or refugees from Ukraine, collectively referred to as “victims of the further Russian invasion of Ukraine.”
According to recent guidance from the IRS, the guidance affirms that employee leave donated through employer-based programs to aid victims of the Russian invasion of Ukraine will not be taxed as income of the donor employees. The notice states that employers’ cash payments for Ukraine victim relief made in exchange for vacation, sick or personal leave their employees choose to forgo will not be treated as employee wages or compensation, or otherwise included in employees’ gross income, if the payments are:
- Made to a Section 170(c) organization to aid victims of the Russian invasion of Ukraine that began February 24, 2022 (what the IRS terms the “further Russian invasion of Ukraine”); and
- Paid to a Section 170(c) organization before January 1, 2023.
What’s an Employer Leave-Based Donation Program?
Employer leave-based donation programs allow employees to forgo vacation, sick or personal leave in exchange for cash payments made by their employers to charitable organizations described in Section 170(c) of the IRS Code. The donated leave is taxable to donor employees unless the IRS makes an exception, which it sometimes does in response to specific situations, as it now has for the war in Ukraine.
Next Steps for Employers
Employers should not include the amount of qualified employer leave-based donation payments in Box 1, 3 or 5 of the donor employee’s Form W-2.
Employees may not claim a charitable contribution deduction under Section 170 for the value of the forgone leave; however, employers may deduct donation payments under the rules of Section 170 or Section 162, if the employer otherwise meets the requirements of either section.
For additional guidance on this topic, it is recommended that employers consult with their tax professional.