The Federal government’s ongoing legislation has provided timely relief for citizens and corporations facing the challenges caused by COVID-19, but there is an existing tax law that can also help alleviate the burdens that have arisen from this pandemic.

In the IRS Notice 2020-18 from March 13, 2020,  the IRS designated the President’s emergency declaration as a federally declared disaster as defined by section 165(i)(5)(A).

Section 139 of the IRS tax code was added to the federal tax code in response to September 11th and allows employers to provide qualified disaster relief payments to assist employees in managing expenses during federally declared disasters.

These payments are tax deductible for the employer and a tax-free benefit for the employees.

According to Section 139, qualified payments may be provided for a “reasonable expense for personal, family, or living, including funeral expenses.” This applies to a variety of types of relief, even for employees who did not suffer a financial impact.

How can an employer make these payments?

Employers may provide employees with simplified access to funds via debit cards administered similarly to an FSA. Currently, the program may run for 90 days. Receipts or substantiation is not required under section 139.

Expenses that qualify include:

  • Groceries and prescription medications
  • Retail and office supplies
  • Education and childcare
  • Healthcare – 213D expenses
  • Clothing
  • Utilities

How it helps:

Section 139 provides a great way for employers to help employees during this unique time while resting assured that the relief they are providing to their workforce is fully deductible.

Employees who may have had a reduction in hours might need help with their basic expenses. For employees working from home, they might need new computers, printers, ergonomic chairs or other supplies for an impromptu home office. Working parents might need to seek alternative and more expensive childcare to replace schools and preschools that have shut down.

For employers that have experienced shutdowns, business interruption, layoffs, and furloughs, section 139 allows employers to provide tax free payments to their employees that would have otherwise been impossible without their employees working.

Any employee is eligible for this benefit, regardless of whether or not they suffered a personal financial impact. This little-known tax law grants employers the opportunity to assuage the financial strain to their employees caused by the COVID-19 pandemic.