In the aftermath of Hurricanes Florence and Michael this fall, employers are asking how they can help their employees during these difficult times. One option that employers have is to make disaster relief payments to their employees.
A disaster relief payment is any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary expenses incurred as a result of a qualified disaster. These payments can be for family or living expenses, or expenses incurred for the repair or rehabilitation of a personal residence and its contents. The disaster relief payments are allowed only to the extent that the expense is not fully paid for by insurance.
A qualified disaster includes areas that are federally declared disasters, as well as disasters resulting from a terroristic or military action.
The disaster relief payments are not treated as any type of earnings to the individual, so they do not need to go through payroll. However, Congress allows for these payments to be deducted by the business as if they were income to the individual.
For example, if a business pays $1,000 to an employee towards their expenses after a hurricane, the employee would not have to report this as income on their tax return or pay taxes on this money. The business, though, would be able to deduct this payment as an expense on their profit and loss statement.
Disaster relief payments are a great way for employers to help out their employees, while saving taxes at the same time. Please contact our office if you have additional questions regarding disaster relief payments.