Notice 2023-69

In Notice 2023-69; IR 2023-181, the IRS described rules and guidelines for employers that desire to create a leave-based donation program to assist victims of the August 8, 2023 fires in Maui.

Under the Notice, employers are permitted to make cash payments to nonprofits that provide relief to the victims of the Maui wildfires. Many residents returned to discover their homes were destroyed and it may take several years to rebuild the city of Lahaina. The leave-exchange donation programs may be very helpful for these disaster victims.

The cash payments must be made by the employer to organizations exempt under Section 170(c). These payments must be made prior to January 1, 2025. The employee voluntarily elects to forgo taking vacation or sick leave pay. An employee will not be treated as having constructive income or compensation and this leave-based donation will not increase the employee’s taxable income on IRS Form W-2.

Because the leave-based donation is not included in taxable income, the employee will not qualify for an additional charitable deduction under Section 170.

The employer has two options for deducting the payments. The employer may deduct payments as charitable deductions under Section 170 or business deductions under Section 162.

Editor's Note: The flexibility of the employer to take the deduction as a business expense under Section 162 is important. Some corporate employers may be close to the 10% charitable deduction limit. This will allow additional assistance to disaster victims. The leave-based gifts will be deductible by the employer under one of these two categories.