3-26-20 Client Alert - Federal Disaster Status Allows Tax-Free Payments to Employees

Posted on March 26, 2020

On March 13, 2020, President Trump declared the novel coronavirus (COVID-19) a federal disaster under the Stafford Act. As a result, this triggered the benefits of Section 139 of the Internal Revenue Code which provide employers the opportunity to provide tax-free qualified disaster relief payments to employees for reasonable and necessary expenses resulting from the pandemic. In addition to being tax-free to the employees, employers are entitled to a corresponding tax deduction and the payments are not subject to federal income or payroll tax withholding or reporting.

Qualified disaster relief payments include payments to or for the benefit of the employee that are reasonably expected by the employer to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. Qualified disaster relief payments do not include (1) payments for any expense compensated by the payment of insurance or some other form of reimbursement; (2) wage replacement such as sick leave; and (3) unemployment compensation or other payments in the nature of income replacement.

Reimbursable expenses or in-kind payments associated with COVID-19 must be reasonable, necessary, and incurred as a result of COVID-19. As such, these will likely take many different forms including, but not limited to, the following: unreimbursed medical expenses, health-related expenses such as over-the-counter medications and hand sanitizers, child care or tutoring due to school closings, home office set-up costs, increased cell phone or utility costs, or transportation expenses due to work relocation.

Qualified disaster relief payments do not need to be paid pursuant to a plan document. Nonetheless, given the tax-free status for qualified disaster relief payments, we suggest those employers that choose to provide such payments should consider adopting an administrative system that validates that the payments meet the Section 139 requirements. For example, such a system can include (a) a short application form for assistance that validates the disaster for which relief is sought; (b) an affirmative statement from the employee that the requested funds are necessary for expenses associated with COVID-19; and (c) an affirmative statement that the expense is not reimbursable by insurance or any other form of reimbursement.

Many states including New York follow the federal tax treatment of Section 139. Other special rules may apply. We are available to discuss the benefits of Section 139 and can assist in the implementation of an appropriate administrative system.

For more information regarding Coronovirus (COVID-19) or to access all of our client alerts go to:


Please contact your Woods Oviatt attorney or the following attorneys regarding COVID-19 related issues:

COVID-19 Multidisciplinary Crisis Group Co-Leaders

Gordon E. Forth, Esq.

Phone: 585-987-2801

Cell: 585-330-2862

Email: Gforth@woodsoviatt.com

Chris R. Rodi, Esq.

Phone: 585-987-2820

Cell: 585- 472-6474

Email: Crodi@woodsoviatt.com

Government Business Regulations

John F. Liebschutz, Esq.

Phone: 585-987-2869

Cell: 585-943-2181

Email: Jliebschutz@woodsoviatt.com

Employment and Labor

Gordon S. Dickens, Esq.

Phone: 585-987-2851

Cell: 585-766-1642

Email: GDickens@woodsoviatt.com

Lorisa D. LaRocca, Esq.

Phone: 585-987-2834

Cell: 585-506-5394

Email: LLarocca@woodsoviatt.com


Donald (Dan) O’Brien, Esq.

Phone: 585-987-2810

Cell: 585-734-9647

Email: Dobrien@woodsoviatt.com

Gregory G. Broikos, Esq.

Phone: 585-987-2805

Cell: 585-208-7060

Email: Gbroikos@woodsoviatt.com

Commercial Contracts

Christopher R. Rodi, Esq.

Phone: 585-987-2820

Cell: 585- 472-6474

Email: Crodi@woodsoviatt.com

Katarina B. Polozie, Esq.

Phone: 585-987-2910

Cell: 202-262-4368

Email: kpolozie@woodsoviatt.com

Liquidity - Capital Calls

Christian J. Henrich, Esq.

Phone: 716-248-3211

Cell: 716-213-7005

Email: chenrich@woodsoviatt.com

Liquidity - Credit Facilities

W. Stephen Tierney, Esq.

Phone: 585-987-2839

Cell: 585-329-1020

Email: stierney@woodsoviatt.com

William F. Savino, Esq.

Phone: 716-248-3210

Cell: 716-982-2557

Email: wsavino@woodsoviatt.com

Litigation and Disputes

Warren B. Rosenbaum, Esq.

Phone: 585-987-2813

Cell: 585-613-6848

Email: wrosenbaum@woodsoviatt.com

Brian D. Gwitt, Esq.

Phone: 716-248-3213

Email: Bgwitt@woodsoviatt.com

Brian J. Capitummino, Esq.

Phone: 585-987-2863

Cell: 585-233-1847

Email: bcapitummino@woodsoviatt.com

Real Estate

Kristopher J. Vurraro, Esq.

Phone: 585-987-2838

Cell: 585-415-3147

Email: Kvurraro@woodsoviatt.com

Benjamin M. Keller, Esq.

Phone: 585-987-2804

Cell: 716-238-4878

Email: Bkeller@woodsoviatt.com


Thomas M. DiPiazza, Jr., Esq.

Phone: 585-987-2861

Cell: 585-615-5690

Email: TDipiazza@woodsoviatt.com

Danielle B. Ridgely, Esq.

Phone: 585-987-2914

Cell: 585-698-8092

Email: Dridgely@woodsoviatt.com

Family Wealth and Estate Planning

Philip L. Burke, Esq.

Phone: 585-987-2850

Cell: 585-748-6198

Email: Pburke@woodsoviatt.com

David P. Shaffer, Esq.

Phone: 585-987-2878

Cell: 585-472-6696

Email: dshaffer@woodsoviatt.com