Cash payments for donated leave aren’t comp: IRS

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Cash payments that employers make to charitable organizations providing relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave that their employees forgo will not be treated as compensation, according to new guidance from the Internal Revenue Service.

At the same time, Notice 2020-46 provides that employees will not be treated as receiving the value of the leave as income, and so cannot claim a deduction for the leave that they donated to their employer.

Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the requirements of either section.

The notice also noted that the payments must be made to organizations that are eligible under Section 170(c) before Jan. 1, 2021.

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Coronavirus IRS Tax regulations Charitable deductions