Both the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) have announced programs to encourage additional contributions to support victims of last month’s Hurricane Katrina.
Under the IRS program (see Notice 2005-68 [http://www.irs.gov/newsroom/article/0,,id=147373,00.html]), employees may donate their accrued, unused vacation, sick, or personal leave time in exchange for their employer’s cash payments made to qualified tax-exempt organizations providing relief for the victims of Hurricane Katrina. If the exchange and cash payment is made before January 1, 2007, the employee’s leave time donation will not be counted as income or wages to the employee and therefore will not be subject to withholding or income tax. Additionally, employers adopting a qualified program for donations will be permitted to deduct the amount of the cash payments on their federal tax filings.
California’s FTB quickly adopted an identical program extending the benefits of the relief program to California employees and employers with respect to their state income tax and tax filings. (See FTB Press Release [ http://www.ftb.ca.gov/aboutFTB/press/2005/05_51.html].)
Employers adopting such donation programs should take care to document any donation request by an employee (including the employee’s signature) to avoid any confusion or later dispute related to future leave time entitlements or payouts upon termination.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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