New Tax Guidance Related to the Outbreak of Ebola

What has been one of the most popular topics to hit the news may now have an affect on your taxes as well. Yes, we are referring to the outbreak of the Ebola virus. On October 29, 2014, the Internal Revenue Service issued two types of guidance in regards to the Ebola outbreak in Liberia, Sierra Leone, and Guinea. One of the types of guidance that the IRS issued designates the outbreak of Ebola as a qualified disaster for federal tax purposes in those countries.

The other type of guidance that the IRS issued will provide special relief that is designed to support leave-based donation programs to help victims who have been affected by the Ebola outbreak in Liberia, Sierra Leone, and Guinea. How does the leave-based donation program actually work? The IRS is allowing employees to have the option of donating their sick, vacation or personal leave in exchange for employer cash payments. These employer cash payments are required to be made to qualified tax-exempt organizations that will provide relief for those affected by the Ebola outbreak that has taken place in those countries. If these payments are made before January 1, 2016, employees will be able to forgo their leave in exchange for employer cash payments. Please note that these payments typically include amounts to cover the essential family, living, personal or other qualified expenses that were not formerly covered by the victims insurance.

How does this affect the filing of your federal income taxes? The donated sick, vacation or personal leave will not be included in the wages or income of the employees. In addition, the employer will be allowed to deduct the amount of the cash payment when the company’s tax return is filed. When looking at it from the recipient’s point of view, those receiving the qualified relief payments in Liberia, Sierra Leone, and Guinea will be able to exclude those payments from income on their income tax returns.

The disaster relief tax guidance that was issued by the IRS is similar to those that were put in place for other qualified disasters, such as the tsunami, the Japan and Haiti earthquakes, and for both Hurricane Sandy and Hurricane Katrina. As always, if you have any questions, do not hesitate to contact an advisor at Anders. We are committed to helping clients.