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How Businesses Can Provide Tax-Free Financial Assistance to Employees

By Kimberly Loocke, Eric Wall, Julia Riechert, and Richard D. Harroch

In the wake of the COVID-19 pandemic and shelter-in-place orders, organisations are thinking about methods to help workers and other employees who are economically strained by the crisis. One tax-favorable and easy action is to make catastrophe relief help payments under Section 139 of the Internal Revenue Code.

Under Section 139, payments for individual, funeral service, household, or living costs sustained as an outcome of the COVID-19 pandemic are both tax-free to the private receivers and tax-deductible costs for business. Payments are devoid of IRS reporting requirements and a strategy can be rapidly embraced with very little cost.

Businesses little and big can make the most of this beneficial tax treatment to assist their employees throughout these difficult times. With cautious preparation, even companies that have actually needed to minimize incomes or embrace furloughs might have the ability to carry out such a monetary help strategy to assist their hardest struck employees from the COVID-19 pandemic.

.Area 139 payments are extremely tax beneficial.

Section 139 payments are left out from the recipient’’ s federal gross earnings and not otherwise dealt with as payment or earnings from self-employment, and are deductible by the service for federal earnings tax functions (other than to the level other owner-employees and self-employed people get an advantage as a recipient of a certified catastrophe relief payment).

.A broad range of expenditures might be covered by Section 139.

Qualified catastrophe relief payments consist of any quantity paid to or for the advantage of a private to repay or pay needed and sensible individual, household, living. or funeral costs sustained as an outcome of a certified catastrophe. Certifying payments might be structured as a repayment of real expenditures sustained by the recipient or as payments identified by the company to be in percentage to the recipient’’ s required and affordable expenditures sustained.


There is no dollar cap on certifying payments, however they can not be (1) produced unnecessary, high-end or ornamental products or services; (2) produced costs which are otherwise made up for by insurance coverage or other sources; or (3) planned to change lost incomes or earnings.

.Area 139 payments have low administrative and compliance requirements.

Payments made pursuant to Section 139 are not needed to be reported on a Form W-2 or Form 1099. These payments are exempt to any federal wage or other work tax withholding commitments. Companies ought to connect to their tax consultants to verify any state tax and withholding commitments.

An official strategy or policy to govern Section 139 payments is not needed and an organisation is not needed to get evidence of the real expenditures sustained by the receivers as long as business fairly anticipates the total up to be commensurate with the quantities of the private’’ s unreimbursed sensible and essential expenditures sustained as an outcome of the COVID-19 pandemic.

However, we suggest embracing a strategy that explains the criteria and eligibility requirements for payments under the strategy. Finest practices likewise consist of getting an affirmative declaration from the recipient that the funds gotten are required for costs connected with COVID-19 which such costs will not be repaid by insurance coverage.

.Test Employee Financial Assistance Plan.

A range of various methods might be utilized to supply tax-favored monetary support. Here is a sample Employee Financial Assistance Plan for a policy that supplies compensations for recorded COVID-19 expenditures. This sample consists of the suggested practices explained above and need to be customized to your service’s specific scenario:

.COVID-19 Reimbursement Policy.

This short-term policy develops standards for Company compensations of worker costs sustained due to the COVID-19 pandemic in accordance with Section 139 of the Internal Revenue Code. Topic to the conditions listed below, all Company workers who have actually sustained essential and sensible Covered Expenses within the Covered Period as an outcome of the COVID-19 pandemic might get repayments of such costs of as much as $____ per staff member.

Covered Expenses. ““ Covered Expenses ” are expenditures that are essential and sensible individual, household, funeral service, or living expenditures sustained as a direct outcome of the COVID-19 pandemic, compensation for which certify as certified catastrophe relief payments under Section 139 of the Internal Revenue Code, and which are not otherwise made up for by insurance coverage or otherwise. The Company will not repay expenses of unnecessary, high-end, or ornamental products or services or pay that are thought about by the Company as replacement for lost salaries, authorized leave, or other earnings. Examples of expenditures arising from the COVID-19 pandemic that the Company will think about for compensation consist of:

.Medical costs not made up for by insurance coverage sustained as an outcome of a COVID-19 medical diagnosis or presumed COVID-19 infection.Preventive health expenditures, consisting of hand sanitizer, face masks, gloves, and disinfectant cleansing products.Increased expenses associated to telecommuting due the COVID-19 pandemic, consisting of continuous and preliminary office costs, which are not otherwise compensated or covered by the Company.Increased travel and travelling expenses sustained as an outcome of the need to utilize alternative travel and travelling plans due to the COVID-19 pandemic.Increased expenses of child-care and instructional expenditures for instant member of the family due to the COVID-19 pandemic.

Reimbursement Procedures. Repayment demands should be sent to ___________________ within 60 days of the date sustained, together with suitable supporting paperwork (e.g., a copy of invoices and a comprehensive itemized list of costs sustained) and an accreditation that the costs were required and sensible costs sustained as an outcome of the COVID-19 pandemic and are being asked for in compliance with the conditions of this policy. Expenditures for products or services the Company considers in its own discretion as inessential, high-end, or ornamental, or not sustained as an outcome of the COVID-19 pandemic will not be compensated. The Company will figure out whether to compensate for sent expenditures in its sole discretion. The worker should go back to the Company any quantities gotten in excess of the validated costs within 60 days from the date of compensation.

Payment Details. Repayment payments will be made as part the Company’’ s routinely arranged payroll after invoice of the needed documents and conclusion of the Company’’ s approval procedure. The Company means to deal with certifying compensations as non-taxable for federal work and earnings tax functions under Section 139 of the Internal Revenue Code, and the repayments will not otherwise be dealt with as settlement for functions of the Company’’ s other advantage and reward programs.

Covered Period. The ““ Covered Period ” for this policy is March 13, 2020, through the date at which the COVID-19 pandemic is no longer thought about a federally stated catastrophe or when the Company ends the policy, in its sole discretion. The Company reserves the right to cancel this policy or customize at any time.  

. COVID-19 Reimbursement.Worker Expense Certification.

Employee Name: _____________________________________________

Requested Reimbursement Amount: ________________________________

Expense Documentation Attached:  YES

I accredit that the asked for compensation quantity is for needed and sensible costs sustained by me or my instant household on or after March 13, 2020, as a direct outcome of the COVID-19 pandemic and is being asked for in great faith pursuant to the Company’’ s COVID-19 Reimbursement Policy. I likewise accredit the asked for repayment quantity is not planned to make up for lost earnings, authorized leave, or earnings, and I did not and will not get repayment or payment from any other source for the declared costs.

Signature: ____________________________________

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Kimberly Loocke is a knowledgeable tax lawyer in the San Francisco workplace of Orrick, Herrington &&Sutcliffe. Kimberly focuses her practice on the tax elements of genuine and business estate deals, sales and utilize tax, in addition to tax debate and functional matters. She has actually been acknowledged as a Rising Star by Super Lawyers from 2015-2019. Kimberly holds a Certified Public Accountant license and worked as a senior tax partner for Deloitte Tax, LLP. She can be reached through Orrick’’ s site


Eric Wall is a partner in the San Francisco workplace of Orrick, Herrington &Sutcliffe, and belongs to its Tax Group. His practice incorporates a variety of federal and state tax problems, consisting of cross-border and domestic acquisitions and mergers, executive settlement matters, property matters, and tax of pass-through entities. He can be called through Orrick’’ s site


Julia Riechert is a work law partner and trial attorney in the Silicon Valley workplace of Orrick, Herrington &&Sutcliffe. She assists business browse and solve difficult office concerns and has comprehensive know-how in litigating and beating work claims. She can be reached through Orrick’’ s site


Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, an equity capital fund in the San Francisco location. His focus is on web, digital media, and software application business, and he was the creator of a number of web business. His posts have actually appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of a number of books on start-ups and entrepreneurship along with the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small company. He is the co-author of the 1,500-page book ““ Mergers and Acquisitions of Privately Held Companies: Analysis, Agreements and types,” ” released by Bloomberg. He was likewise a business and M&A partner at the Orrick law practice, with experience in mergers, start-ups and acquisitions, and equity capital. He has actually been associated with over 200 M&A deals and 250 start-up fundings. He can be reached through LinkedIn .

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