While New Jersey was spared from the recent catastrophic storms impacting the United States, many of our family members have not been so lucky. With the memories of Superstorm Sandy still fresh, we all remember how overwhelming the cleanup and rebuilding process can be.
Thankfully, the Internal Revenue Service (IRS) is making it easier to help. One federal tax relief program allows employees to donate the value of their vacation, sick time, or other paid time off (PTO) for hurricane relief. The employer may deduct the payment as an ordinary business expense. Another allows hurricane victims and their families to more easily tap into their 401(k) savings without penalty.
Leave-Based Donation Programs
The IRS Hurricane Henry program allows employees to forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster. Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses not subject to any percentage limitation on charitable deductions. Similar programs were launched in the wake of Hurricane Katrina and Superstorm Sandy. After making landfall in Florida, a similar program for Hurricane Irma should follow shortly.
Retirement Plan Distributions
The IRS has also initiated another hurricane relief program that authorizes 401(k)s and similar employer-sponsored retirement plans to provide loans and hardship distributions to victims of Hurricane Harvey and Hurricane Irma, as well as members of their families.
Employees can typically only access funds in their employer retirement plans upon the occurrence of certain events, such as termination of employment, disability or hardship. Under the relief program, a retirement plan can allow a victim of Hurricane Harvey to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. In addition, the IRS program allows a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependents who lived or worked in the disaster area.
The IRS has also relaxed the procedures for obtaining a loan or hardship withdrawal. Notably, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply, and plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features.
Hurricane Relief Charity Scams
Sadly, the IRS has also issued a warning regarding hurricane relief scams. “Criminals often send emails that steer recipients to bogus websites that appear to be affiliated with legitimate charitable causes,” the IRS warned. “These sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade people to send money or provide personal financial information that can be used to steal identities or financial resources.”
To avoid falling victim to a charity scam, verify that you are giving to a recognized organization and never provide personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution.
Do you have any questions? Would you like to discuss the matter further? If so, please contact me, James McDonough, at 201-806-3364.