Lending a Helping Hand: How to Decode COVID-19 Disaster Payments
Updated: May 14, 2020
As COVID-19 continues to impact not only our workplaces, but also our workforce, it is crucial that companies find ways to alleviate the stress—both personal and financial—that their employees may be experiencing as a result of this pandemic.
Because the novel coronavirus has been formally designated as a “disaster” under the Stafford Act, disaster relief payments—which are defined under Section 139 of the Internal Revenue Code—provide a great opportunity for employers to offer tax-deductible and tax-free payments and reimbursements to their employees.
Unsure how to take advantage of the program? Not to worry — here is a brief overview of Section 139, what these payments might cover, and how we recommend you develop your payment program:
Disaster Relief Under Section 139
As stated under Section 139 of the Internal Revenue Code, “qualified disaster relief payment” is generally defined as any amount paid by an employer to an employee, in order to reimburse or pay them for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. It is important to note that certain payments, such as those that are otherwise paid for by insurance or other reimbursements, do not qualify.
It is significant to note that not only are these payments generally tax-free for the recipients, they are also tax-deductible for the employers who provide them. On top of that, because this relief is necessitated by such extraordinary circumstances, the usual administrative restrictions have been somewhat lessened:
You won’t have to report payments on Forms W-2 or 1099
There is no specific limit on the amount of reimbursement available to an employee
Individuals will not be required to account to their employer for actual expenses, provided that the amount spent is commensurate with the employer’s expectation.
Potential Uses of Disaster Relief Payment
Because no formal regulations have yet been issued to provide guidance on precisely which expenses are “reasonable and necessary,” it is up to the discretion of employers to determine what kinds of payments employees are eligible to receive. For example, employers might choose to cover expenses such as:
Working-from-home expenses (e.g. cost of office supplies, personal computer, internet connection)
Dependent-related expenses (e.g. tutoring, childcare services, access to remote learning tools)
Commuting expenses (e.g. due to work relocation or lack of access to public transportation)
Medical expenses not covered by insurance (e.g. OTC medications, cleaning supplies, hand sanitizer)
Funeral expenses (e.g. in the case an employee or their spouse/dependent passes away from COVID-19 related issues)
How to Develop Your Program
Although there’s something to be said for Section 139’s flexibility, most employers will probably still want to develop a clear-cut system for distributing disaster benefits. It is important to define which employees are eligible, what expenses will be covered, and how much employees can expect to be reimbursed, not only for the sake of clarity, but also for ease of filing later down the line.
While employers are welcome to develop their programs however they see fit, we strongly recommend partnering with a company like Benepass that can help you take advantage of these benefits while relieving you of the administrative hassle. Rather than letting yourself get bogged down in paperwork, calculating tax implications, and worrying over the best way to distribute the money, companies can use Benepass to help set up their disaster benefits easily, safely, and most importantly, overnight.
For more information on easy-to-access, all-in-one-place benefits, please email firstname.lastname@example.org.