IRS Guidance on Leave Donation Programs

As communities continue to face challenges related to COVID-19, employers may consider implementing a Paid Time Off (PTO) donation program that allows employees to help charitable organizations provide relief to those impacted by the pandemic.

The IRS recently released Notice 2020-46, which provides guidelines on employer-sponsored charitable leave-based donation programs. Through December 31, 2020, this program allows employees to give back to their employer accrued but unused PTO (such as vacation time, sick time, personal leave time) in exchange for the employer donating an amount equivalent to the donated PTO to charitable organizations that qualify under Section 170(c) and are providing relief to victims of the COVID-19 pandemic. Note that this applies only through the end of this tax year. For example, if an employee making $10.00 per hour donates 40 hours of PTO, the employer converts those donated hours into $400 cash. The employer then donates $400 to an eligible charitable organization, and 40 hours is subtracted from the employee’s PTO balance. Employers can choose which charitable organization(s) will receive an employee’s donated PTO funds.

Employers who wish to create this type of PTO donation program will need to determine the following:

  • Who is eligible to participate in the program?
  • What types of leave may be donated?
  • What increments of time may be donated (hours, days, weeks)?
  • How will employees indicate how much time they want to donate?

A PTO donation program may have tax implications for both employers and employees. We encourage organizations considering such programs to work closely with their tax advisors to ensure proper implementation and reporting under applicable federal and state tax laws.

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