Unused vacation days? Donate them to disaster relief (everybody wins)!
Labor Day weekend has come and gone and the push towards the end of the year is underway. Are you an employee with unused leave days (vacation, sick or personal days)? As an employer, have you noticed that many employees have a surplus of unused leave? Upon employee request, employers can donate the value of unused leave days to a disaster relief charity to help the Harvey recovery efforts. Keep reading to see how employees AND employers can generate savings and much needed funds can get delivered to the recovery effort.
The IRS has issued a policy, previously used as a relief effort in disasters such as Hurricanes Katrina and Sandy, that allows employees to ask their employers to donate the value of unused vacation, personal and sick days to disaster relief for Harvey (click here to read the IRS press release). Because this effort will require some additional employer effort, the employer is not mandated to comply with your request to donate your daily salary to the relief effort (if the request is denied, you keep your unused days as if the request was never made...no foul for trying). However, the amount of money the employer could potentially save should make it worth their time.
This is how it works...you ask your employer if they would be willing to donate one (or more) days of your salary for unused leave days to disaster relief. If they agree to do so, they simply deduct a day from your balance and you can no longer use, or get paid, for that day. The amount you would have gotten paid for that day will never show up in your income on your w2; you never have to claim the income that the employer will donate. The advantage for the employee is as follows: if you wrote a check or jumped online and donated $100 to charity from your checking account, you do not pay $100 less in taxes. You still pay some tax on that $100 of income because regular charitable contributions are not a dollar for dollar deductions. However, if you have a daily salary of $100 and in lieu of it being paid to you it is donated directly to disaster relief by your employer, you never recognize the income. You pay zero tax on that $100 that was donated because it was never paid to you in the first place. Therefore, based upon your individual tax situation (i.e., if you pay tax), you should generate some savings using this special leave-based donation method.
What makes this worthwhile for the employer, especially if it requires a little extra human-power to execute? When the employer makes the donation to a disaster relief effort, they are allowed to take the donation as a business expense against income. Normally when an employer pays a salary, it is liable for various payroll taxes that can be as high 16% or 17% of the gross salary. When the salary is donated via this disaster relief allowed method, the employer takes the business expense for the gross amount of the salary donated and does not pay any of the payroll taxes. This generates significant savings, in essence offsetting the additional work required to organize this undertaking. Finally, this can also be used as a tax planning strategy (for employees and employers) as the contributions can be made anytime between now and January 1, 2019.
THIS IS EASY! It's a great way for employees and employers to team up and make a difference! Funds get sent to the relief efforts and employees and employers save a little money over traditional methods! It's a cool incentive to generate cash flow for the much needed victims of Harvey! (Author's note: I feel the excessive use of exclamation points is warranted...this is good stuff!)
As always, consult your tax professional if you have questions about how this works and to make sure you execute it properly. Information contained within is subject to change and should always be confirmed prior to use.
Adam Ditsky, CPA
President, Ditsky Strategic