You Can Help Employees Hit By Hurricane Sandy-Tax Break.
November 13, 2012 by Ed Becker
As a small employer located on Long Island the devastation and impact on people’s lives here can not be explained in words. The goodness in people is abundant everywhere you look, neighbors taking in neighbors, charities being created, food and clothing centers springing up over night, and now the time for employers to step in and help is here.
Under the tax laws, employers can help employees with cash payments to offset their Hurricane Sandy losses tax free through a little-known provision called Qualified Disaster Relief Payments (“QDRP”). QDRP are fully deductible to businesses and is not considered taxable income to the employee.
During the aftermath of Hurricane Sandy, many employees have suffered significant personal losses (i.e damaged or lost homes, cars, clothing and household effects). Their main focus is trying to restore their personal lives. With QDRP, businesses can help their employees bring normalcy to their lives sooner through tax free income. Simply put, an employer can make cash payments to its employees to reimburse them for their uninsured losses. It’s that easy. QDRP can pay for physical damage losses and payments for additional personal, family living or funeral expenses incurred as a result of Hurricane Sandy. Also, QDRP can reimburse or pay for expenses to repair or replace their home or apartment. So employers can pay for clothing, food, lodging and commuting costs. Furthermore, there is no monetary limit on how much assistance that an employer can provide to any employee other than that the amount has to be reasonable and necessary. Additionally, employer payments to employees can be made on a discriminatory basis; therefore employers can direct payments to needed and valued employees.
In order for the payments to qualify as QDRP, the employee needs to live in the disaster zone which is declared by the President and for Hurricane Sandy includes most counties in NY, NJ and southern CT. For employers with a large number of employees, the company can set up a formal process or plan to distribute the money to their employees by asking them about their losses. For employers with a smaller number of employees, there doesn’t have to be a formal plan, but the employer needs to make sure that the employee has a loss that is uninsured. Usually, employees need to fully document expense reimbursements to avoid taxable income, but for QDRP, no documentation is required other than the amount needs to be reasonable. And of course, the company’s expense is fully tax deductible. For income tax reporting, QDRP are not subject to income taxes so there is no reporting requirements in the employee’s W-2, payroll taxes, nor withholding taxes.
Time for everyone to step up and help.
