Tax Treatment Summary
| Program Type | Tax Treatment | IRS Authority |
|---|---|---|
| Employer-funded grant (non-disaster) | Taxable income to employee | IRC §61 |
| Qualified disaster relief payment | Tax-free to employee | IRC §139 |
| Employee-funded charitable fund | Tax-free if IRS-approved; complex rules | Rev. Proc. 2014-35 |
| Employer loan (forgiven) | Taxable when forgiven | IRC §61 |
| Employer loan (repaid) | Not taxable | N/A |
IRC Section 139
IRC Section 139 provides a tax exclusion for "qualified disaster relief payments" — payments made to reimburse employees for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. A "qualified disaster" includes federally declared disasters, terrorist attacks, and other events determined by the IRS. Section 139 payments are tax-free to the employee and deductible by the employer.
Employee-Funded Programs
Compliance Note
Employee-funded hardship programs — funded by employee donations — have complex tax rules. To be tax-free to recipients, the program must be structured as a charitable organization (501(c)(3)) or meet the requirements of Rev. Proc. 2014-35. Consult tax counsel before implementing an employee-funded hardship program. Improperly structured programs can result in taxable income to both donors and recipients.