TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, November 11, 2012

IRS 'Turbocharges' Donation of Unused Vacation Days to Aid Hurricane Sandy Victims

Wall Street Journal Tax Report:  Donating Your Vacation Time, by Laura Saunders:

Now there is another way for workers to help victims of superstorm Sandy: donating unused vacation days.

This past week, the IRS reactivated this benefit [in Notice 2012-69], which it previously allowed after the Sept. 11 attacks and Hurricane Katrina.

In recent years many companies have begun offering employees greater flexibility in managing their vacation time and other "leave" days, such as allowing them to buy or sell extra days, while limiting time carried over from prior years that puts a liability on the books. The IRS's move provides tax breaks both to employers who allow donations of days and to employees who make them.

"Based on our experience, I have no doubt the IRS's action will turbocharge donations to Sandy relief," says Mary Hevener, an employee-benefits expert at Morgan, Lewis & Bockius in Washington who worked with the American Payroll Association to secure the ruling. ...

As a result of the IRS's ruling, all three groups benefit. Charitably-minded employees can make a donation without writing a check. Although they don't get a deduction on their tax return, the pay they forfeit is subtracted from their total earnings. Tax-wise this is often a wash. ...

Employers benefit because the donated pay is deductible as wages rather than a charitable contribution. That is welcome both because charitable deductions are sometimes limited and because larger wage deductions can be helpful with other tax issues. ... 

For nonprofits helping Sandy victims, the IRS's move will likely bring in more money—both because workers will find it easy to contribute unused days and because the donated leave is exempt from Social Security and Medicare taxes, as well as income taxes. This year, those taxes top out at 13.3% when employer and employee shares are added together.

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Great development. We are now on the road to becoming a country of charity and welfare benefits!

Posted by: Jimbino | Nov 11, 2012 11:12:11 AM