On February 13, 2020, President Trump invoked the
Stafford Act, and opened the door to a range of possibilities in structuring “qualified disaster mitigation” payments to employees under IRC Section 139. These payments are advantageous to both employers and employees and not subject to income taxes or payroll taxes. Yet, an employer is still allowed to claim them as a
deduction.
Expense reimbursement that can be considered “reasonable and necessary” as a result of the “qualified disaster” cannot simply be income replacement, such as sick, vacation, etc. The expenses you are reimbursing need to be: (i) expenses that are not otherwise covered by insurance; and (ii) “reasonably related” to personal, family, medical or housing expenses related to the “qualified disaster.” There is no stated cap or limit on the amount you can issue as tax-free reimbursement. Further, the IRS has made clear that if the reimbursement amount is “reasonable,” you do not need to require documentation to substantiate the expense from your employees. Examples include: A company sent employees to work from home with a $250 stipend for the equipment they need and a $50/month allowance for internet and phone service; employer is paying for employees’ transportation costs so they can avoid public transit systems; company issues all employees on temporary layoff a $1,000 stipend as housing assistance during that time; and a company is reimbursing hourly employees for up to $100 per day in childcare costs.
