2C — March 18 - April 21, 2022 — Owners, Developers & Managers — M id A tlantic Real Estate Journal
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O wners , D evelopers & M anagers
By Stuart B. Koch, CPA, Withum Qualified Disaster Relief Payments Under Internal Revenue Code Section 139
A
s the pandemic moves into a new phase and businesses and offices
Disaster Relief Payments” on an income tax-free basis. A “qualified disaster relief payment” as defined by Section 139(b) of the Code includes, in part, any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, fam- ily, living, or funeral expenses incurred as a result of a quali- fied disaster. These payments do not include wages paid to an employee, even while not providing services. The origin of Section 139 stems from the 9/11 terror- ist attacks. Previously, any
payments to employees in need would be considered taxable wages and subject to employment taxes. Section 139, however, provided that any amount received as a “qualified disaster relief pay - ment” cannot be taxed to the employee as income. There is no need to report these pay- ments on Form W-2 or 1099. This treatment, in most cases, would also apply for state in- come tax purposes. OnMarch 13, 2020, President Trump declared COVID-19 a national disaster under the Robert T. Stafford Disaster
Relief and Emergency Assis- tance Act. This determination was for all 50 states, the Dis- trict of Columbia, and all U.S. Territories.To date, President Biden has not lifted the disas- ter designation, therefore, the provisions of Section 139 are still in effect, providing busi- nesses with an effective tax-free way to reimburse employees as they transition back to work or continue working remotely. It allows businesses the ability to structure their own plans of re- imbursement for prior expenses and future costs. The language used in Section
139 is not specific and there have not been regulations or additional guidance given. Therefore, even an informal written disaster relief plan, although not required, would be advisable. Included in the plan at the least should be employee eligibility requirements, as participation can be restricted, types and limits of “qualified disaster relief payments” as defined by Section 139(b) of the Code that are not reimbursed by insurance, and start and end dates of the plan. Section 139 does not require receipts of any type from the employee, and it is the employee’s responsibility to justify the expense. However, it is advisable to require some type of written itemization of expenses from the employee. Employers can deduct these payments as ordinary and necessary business expenses. However, payments that would create a double benefit such as payments to an owner–em- ployee would not be included. A “Qualified disaster relief payment” as defined by Section 139(b) is: • To reimburse or pay rea - sonable and necessary per- sonal, family, living, or funeral expenses not reimbursed by insurance • To reimburse or pay reason - able and necessary expenses for the repair of a personal residence or replacement of the contents • By a person acting as a common carrier by reason of death or personal injury from the disaster • By a federal, state, or lo - cal government or agency or instrumentality in connection with a qualified disaster to promote general welfare Specific guidance has not been given as to reimburs- able expenses in a pandemic as opposed to a disaster. The following would indicate some examples of eligible expense categories and is not to be meant to be all inclusive: • Grocery delivery • Additional living expenses • Caregiver costs • Domestic services • Costs of quarantine • Medical and hygienic ex - penses not covered by health insurance • Childcare expenses, tutor - ing, or homeschooling expenses • Expenses incurred to allow work from home such as the continued on page 8C
are starting t o r e s ume normal op- erations, it may be time to revisit In- ternal Rev- enue Code ( t he Code ) Section 139,
an underutilized and often overlooked Code Section. It is an opportunity for businesses to reimburse individuals for prior and ongoing “Qualified Stuart B. Koch
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