On 5/19/2022, the IRS provided guidance on employers making leave-based donations to aid victims of the Russian invasion of Ukraine. Leave-based donations allow employees to donate a portion or all of their unused vacation or sick leave benefits to a charitable organization. Employees can forfeit their leave-based benefits in exchange for their employer making a cash contribution. In the past, the IRS has authorized this type of donation for several crises and natural disasters such as 9/11 and the COVID-19 pandemic.
Historically, these leave-based donations were reported as income for the employee through wages, even though the employee was electing to give up their benefits. However, the IRS made an exception for leave-based donations made before Jan 1, 2023, to a Sec 170(c) organization that aids victims of the Russian invasion of Ukraine. These donations will not be treated as income for the employees who choose to donate their leave-based benefits, and therefore may not be claimed as a charitable contribution on the employees’ individual tax returns. The employer may deduct these donations as charitable contributions under Sec. 170 or as ordinary and necessary business expenses under Sec. 162.