While the ultimate impact of COVID-19 is still unknown, many individuals are relying on the flexibility of their employers more than ever. Companies are increasingly using leave-sharing banks in addition to the paid sick leave and family leave U.S. employers must provide under the Families First Coronavirus Response Act (FFCRA).
For major disaster and medical leave-sharing programs such as we have now, the IRS has waived tax obligations for donating employees. Employees who donate to the pool will not be taxed on this donation. Employees who receive and use the donated leave will have the donated leave treated as wages, and be responsible for any corresponding taxes. Fortunately, the IRS does not require the employer to obtain pre-approval of a COVID-19 leave-sharing program nor does it require any filings or reports to be made about the program. Also, since a leave-sharing plan generally is not subject to ERISA, there are no Department of Labor filings required. In short, the only employer reporting obligation is to properly track donated leave, received leave, and report W-2 wages and withhold taxes for recipients.
