Section 139

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Is an individual service provider an employee or an independent contractor?  As our employee benefits colleagues have noted previously in Covington’s Inside Compensation blog, the IRS test is complicated and just one of many for determining worker status under federal and state laws.  The American Workers, Families, and Employers Assistance Act (the “Bill”), one of a series of COVID-19 relief bills released by Senate Republicans, would address one aspect of worker classification during the COVID-19 pandemic.  Specifically, Section 214 of the Bill would provide that certain COVID-19 related benefits provided to an individual would not be taken into account in determining worker classification under the Code.  Section 214 further provides that such benefits (other than cash payments) would generally be considered qualified disaster relief payments under Code Section 139.
Continue Reading Senate Bill Would Ignore COVID-19 Assistance in Determining Worker Classification; Treat Certain Benefits as Qualified Disaster Relief Payments

The IRS recently released Notice 2020-46, providing favorable tax relief for “leave-based donation programs” designed to aid victims of COVID-19 pandemic.  Under these programs, employees may elect to forgo vacation, sick, or personal leave in exchange for payments that the employer makes to charitable organizations described under section 170(c).  Under this notice, payments employees elect to forgo do not constitute income or wages of the employees for federal income and employment tax purposes if the employer makes the payments, before January 1, 2021, to charitable organizations for the relief of victims of the pandemic.  The IRS will not assert that an opportunity to make this election results in employees’ constructive receipt of the payments.  Accordingly, an employer would not need to include the payments in Box 1, 3 (if applicable), or 5 of the Forms W-2 for employees electing to forgo their vacation, sick, or personal leave.…

Continue Reading IRS Provides Guidance on Leave Donation Programs in Response to COVID-19 Pandemic

The IRS recently updated its FAQs discussing the two COVID-19-related payroll tax credits under the Families First Coronavirus Response Act (“FFCRA”) to confirm the availability of section 139 disaster relief programs to respond to employee needs during the COVID-19 pandemic.  However, the FAQ also serves to remind employers of the scope of Section 139:

58.  Are qualified sick leave wages and qualified family leave wages excluded from gross income as “qualified disaster relief payments”?

No.  Section 139 of the Internal Revenue Code (Code) excludes from a taxpayer’s gross income certain payments to individuals to reimburse or pay for expenses related to a qualified disaster (“qualified disaster relief payments”).  Although the COVID-19 outbreak is a “qualified disaster” for purposes of section 139 the Code (see below), qualified leave wages are not excludible qualified disaster relief payments, because qualified leave wages are intended to replace wages or compensation that an individual would otherwise earn, rather than to serve as payments to offset any particular expenses that an individual would incur due to COVID-19.…

Continue Reading IRS Reiterates Scope of Section 139 Disaster Relief Payments in FAQ

In an earlier alert, we expressed concern about the applicability of Section 139.  Our concern was based on the fact that the President’s declaration of an emergency on March 13, 2020, with respect to the COVID-19 pandemic was under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”) pertaining to national emergencies, rather than Section 401 pertaining to disasters.  Our alert called on the IRS to issue guidance immediately confirming the application of Section 139, which would permit employers to offer “qualified disaster relief payments” to employees as a means of mitigating the expenses associated with the pandemic’s effects.  Based on communications with the IRS, we understand the IRS is considering that request.  We now believe, based on recent IRS guidance, that it would be reasonable for employers to take the position that Section 139 is available to employers, but  IRS guidance is still needed to make this clear and to provide further clarity on the types of expenses for which it may be used given the unique circumstances of the present emergency.
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Continue Reading COVID-19 Emergency Declaration: Notice 2020-17 Suggests Code Section 139 is Available to Provide Tax-Free Payments for Certain Expenses

UPDATE: We have provided an updated analysis of the issues surrounding the availability of Section 139.  Our original post is below.

On March 13, 2020, the President declared the COVID-19 pandemic to be an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).  The decision to declare an emergency is addressed in a letter from the President to Administration officials in which he explained that his decision to issue an emergency declaration was “based on the fact that our entire country is now facing a significant public health emergency.”…
Continue Reading COVID-19 Emergency Declaration: Code Section 139 Uncertain; Leave-Sharing Policies Permitted