In anticipation of Hurricane Dorian impacting the southeast coast, the Federal Emergency Management Agency (FEMA) posted emergency declarations for Florida, Georgia, North Carolina and South Carolina. Once FEMA makes an emergency declaration, qualified disaster relief payments under IRC Section 139 made to affected employees are excluded from gross income and tax-exempt charities may begin providing assistance to qualified victims.

These emergency declarations could escalate to the status of major disaster when and if specific areas experience direct impact and damages from Hurricane Dorian. In the case of a major disaster declaration, the IRS is allowed under IRC Section 7508A to postpone various tax-related deadlines for up to one year and to provide other relief, such as allowing leave sharing and leave-based donations, and relaxing the documentation requirements for hardship distributions and loans from qualified retirement plans. The IRS usually limits this relief to major disaster areas eligible for (1) individual assistance or (2) individual and public assistance; however, exceptions can sometimes apply.

Qualified disaster relief payments

When an emergency disaster or major disaster declaration is posted by FEMA for public and individual assistance, qualified disaster relief payments provided to affected employees under IRC Section139 are exempt from federal income tax, federal income tax withholding (FITW), Social Security/Medicare (FICA) and federal unemployment insurance (FUTA). Further, these benefits are not reported on the Form W-2, Wage and Tax Statement.

The term "qualified disaster relief payment" means any amount paid to, or for the benefit of, an individual:

• To reimburse or pay reasonable and necessary personal, family, living or funeral expenses incurred because of a qualified disaster
• To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent such need is attributable to a qualified disaster, or
• By a federal, state or local government, or agency or instrumentality thereof, in connection with a qualified disaster to promote the general welfare

Qualified disaster relief payments do not include payments for any expenses compensated by insurance or otherwise.

For more information

For more information on disaster relief for the workforce, see our special report or reach out to one of our contacts below.

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