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If an employer has adopted a leave-based donation program, there is a little-known disaster provision in the tax code. In this case, the employees can forgo paid vacation, sick, or personal leave in exchange for making equivalent cash payments to qualified charitable organizations. This does not necessarily mean the employee also forfeits the time off; it will not be paid time off to the extent it is converted to leave-based donation payments.
Employer leave-based donation payments made by an employer before January 1, 2023, to a qualified U.S. charitable organization to aid victims of the further Russian invasion of Ukraine will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Thus, the employee will not be taxed on vacation, sick, or personal leave pay is given up, but since it is not taxable, the employee cannot also deduct it as a charitable contribution.
Employers can deduct the contribution and avoid their share of payroll taxes that would otherwise be due on paid employee vacation, sick, or personal leave. From the employee’s viewpoint, they also avoid their share of payroll taxes and the income taxes they would have had to pay on the forgone income.
This opens a tremendous opportunity for employees to donate to Ukrainian relief efforts. Employees wishing to participate should check with their employer to see if they opted into this voluntary program. Employers wishing to participate can refer to IRS Notice 2022-28 or call this office for additional information.