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IRS Says Employees Can Donate Leave for COVID-19

In August 2020, the Internal Revenue Service (IRS) issues Leave Sharing Plans Frequently Asked Questions addressing the application of leave-sharing programs to those affected by COVID-19. IRS Notice 2006-59 provides guidance regarding when a major disaster leave-sharing plan is permissible.

A compliant leave-sharing is established in a written plan document and:

  1. Allows a leave donor to deposit accrued leave in an employer-sponsored bank for other employees who are adversely affected by a major disaster to use;
  2. Does not allow leave donations to a specific recipient;
  3. The maximum amount of leave donated in a year does not exceed the amount of leave accrued during the year;
  4. The recipient uses paid leave for purposes related to the major disaster at the normal rate of compensation;
  5. The plan sets a reasonable limit, based the severity of the major disaster, on the time period after the disaster to donate leave and use donated leave;
  6. The recipient does not convert donated leave to cash;
  7. The employer makes a reasonable determination, based on need, as to how much leave recipients can receive;
  8. The leave is used only for employees affected by the major disaster or the leave is returned to the donor.

In its most recent guidance, the IRS adds additional clarity to the application of the leave-sharing rules for the COVID-19 pandemic. First, the FAQ confirms that the COVID-19 pandemic qualifies as a “major disaster” that would allow employers to establish a leave-sharing program under IRS Notice 2006-59. Additionally, the FAQ confirms that while the leave donor does not need to include the donated leave in his or her income or wages, the donor cannot claim the leave donation as an expense, charitable donation, or loss deduction.

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