Stafford Act Provides Unique Benefit for Companies, Employees

On March 13, 2020 President Trump determined that the COVID-19 pandemic warranted a nationwide emergency declaration as a qualified disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) and gave employers the opportunity to provide tax-free assistance to employees under Section 139 of the Internal Revenue Code. It has been rarely used since enacted in 2002, when it was added after the September 11 attacks in 2001.

Section 139 provides that qualified disaster relief payments from any source that are used to reimburse or pay an individual for eligible expenses in connection with a defined qualified disaster are not subject to income or employment taxes, including Social Security, Medicare and federal unemployment taxes and are generally tax-deductible for the employer. A qualified disaster relief payment includes any amount paid by an employer to or for the benefit of an employee to reimburse or pay “reasonable and necessary” personal, family, living or funeral expenses incurred as a result of the COVID-19 declared disaster (emphasis added). 

It’s important to note that qualified disaster relief payments do not include payments for expenses that are otherwise paid for by insurance or other reimbursements or income replacement payments, such as payment for lost wages, lost business income or unemployment compensation. 

Financial institutions should consider this information when assisting employees under Section 139:

  • Individuals are not required to substantiate actual expenses to qualify for the exclusion, as long as amounts paid are reasonably in line with expenses incurred
  • Employers may provide assistance to employees directly or through a non-exempt fund established to receive contributions from the employer as well as other employees
  • Payments do not have to be reported on Form W-2 or Form 1099
  • No specific limit on amount of employee reimbursements

While an employer’s qualified disaster relief program does not need to be established in writing, companies are encouraged to establish a written program to define key elements and help communicate this unique employee benefit, including:

  • Eligible employees
  • Covered expenses
  • Limits on the amount of reimbursable expenses (e.g., individual or maximum plan limits)
  • Procedures to seek reimbursement
  • Contact information for person administering the program for the company
  • Timeframe to request reimbursement
  • Statement reserving the right to modify, amend or terminate the reimbursement program

Meet The Rehmann Team

Start typing a name ...
Searching for "{{nameQuery}}"...
Start typing an experience ...
Searching for "{{experienceQuery}}"...
Start typing a location ...
Searching for "{{locationQuery}}"...
Or view a list of team members

get rehmann expertise to drive your business in your inbox every week