Tax Relief for Leave Based Donation Programs

January 13, 2002 Advisory
2
In the aftermath of the September 11, 2001 terrorist attacks, many employers have implemented charitable-leave programs or "leave-based donation programs." Under these programs, employees can elect to forego accrued vacation, sick, or personal leave pay and have their employers contribute these amounts to charitable organizations. Ordinarily, when a portion of an individual's income is assigned in this manner, the amounts may still be included in the individual's gross income under the "constructive receipt" doctrine. In Notice 2001-69, however, the Internal Revenue Service has created a temporary safe harbor from the constructive receipt problem and announced that it will not treat amounts contributed to charities under a leave-based donation program as gross income to the employee (and therefore not included in Box 1,3 or 5 of the employee's W-2). The employer, however, must pay the charitable organization prior to January 1, 2003. The donations can be made to any charitable organization recognized as such by the Internal Revenue Service. Additionally, the employer can deduct these amounts as a trade or business expense, rather than as a charitable contribution. However, employees cannot also deduct the donated amounts on their own income tax returns.