By CATHERINE RAMPELL
Published: November 7, 2012 NY Times
The Internal Revenue Service said Tuesday that American employees could donate, through payroll deductions, their vacation, sick and personal leave days to organizations helping with Hurricane Sandy relief efforts.
The I.R.S. has allowed such donations before, after the Sept. 11 attacks and again after Hurricane Katrina. Under the temporary rules, employers give cash to charitable organizations in exchange for leave time employees agree to forgo. The money must be donated by Jan. 1, 2014.
These rules create a greater tax incentive for workers to give, because they make donations exempt from income taxes and payroll taxes. Normally, donations can be deducted from one’s income taxes, but they are subject to payroll taxes, which finance Social Security and Medicare.
Under the special rules, employees can transfer the cash value of their paid leave time to a designated charity, like the Red Cross, which means they would not need to take the deduction on their income tax return, since they never received the income.
The I.R.S. made the rule change after a request on Sunday from the American Payroll Association, which represents payroll workers and payroll services providers. The association has also requested that employees be granted the opportunity to donate money from their wages in addition to leave days, particularly since many workers do not have paid leave days to give.
Under existing tax rules, employees can already give their own sick or vacation days to co-workers who might have been affected by the hurricane. The donations are not subject to income or payroll taxes after being given by an employee, but the leave time is subject to both kinds of taxes on the part of the recipient.
The American Payroll Association is asking the I.R.S. to change how these kind of donations are treated as well, so that neither the donating nor receiving employees are subject to income or payroll taxes for the donation.