It’s in our nature to want to lend a hand and help those who have fallen on hard times, and during the COVID-19 pandemic there are plenty of people who could use a bit of grace and compassion. The challenge as a business owner is finding a way to ensure the help you want to offer to your employees can truly benefit them to the fullest.
Fortunately, there are various tax provisions and programs businesses can rely on to help their employees in need, as well as make sure both sides aren’t hit with any unexpected tax penalties.
Section 139 can aid employees impacted by the pandemic
Passed in 2001 following the 9/11 terror attacks, Section 139 allows employers to offer tax-advantaged assistance to the employees who are impacted by a qualified disaster. This allows businesses to give additional payments to help if those payments aren’t included in the employee’s gross income.
A qualified disaster-relief payment is a payment to someone to either pay or reimburse expenses that result from disaster, such as the ongoing COVID-19 pandemic. They can include living expenses to support the individual’s family or the cost of a funeral. They also don’t come with a tax hit for the employee either, as support through a qualified disaster-relief payment is not subject to income tax or payroll tax.
Section 127 can ease the burden of paying off student loans
Like Section 139, this provision is set up so employers can offer aid for employees who are pursuing additional educational avenues. The CARES Act, passed earlier this year, expanded the definition of “educational assistance” to include any payments made after March 27 to assist with paying back things like a student loan in 2020.
Now, when employers make payments through an employee educational-assistance program, the employee can claim an exclusion of up to $5,250 to avoid any tax penalties for this year. It’s also not considered wages, so it’s not subject to employment tax, which saves money for both the business and the employee.
These are just two tax provisions that can enable businesses to lend a helping hand to employees in need, particularly during such a challenging year. If you’re interested in seeing how these provisions may work for your business, don’t hesitate to reach out to our trusted team of accountants, CPAs and tax professionals at Padgett. Set up a consultation today, and we’ll make a plan that can truly help your employees.