What Employers Need to Know About Section 139 Qualified Disaster Relief

April 10, 2020 - On March 13, 2020, President Donald Trump declared a state of emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) due to the COVID-19 pandemic.

This declaration triggered the availability of Section 139 of the Internal Revenue Service (IRS) Code (the Code), which allows employers to offer “qualified disaster relief payments” to employees in the form of tax-free reimbursements for necessary and reasonable expenses related directly to disaster management and recovery.

Section 139 allows employers to provide tax-free payments to employees impacted by the COVID-19 pandemic for reasonable and necessary expenses, which may include:

Work- Related Expenses
These expenses may include costs related to a work-at-home transition required due to COVID-19 including equipment, office furniture, internet, phone, increased utility costs, and home office setup. For essential employees required to commute to a place of work, transportation fees like taxis or rideshare expenses may also be covered due to mass transit suspensions or reduction in hours.

Temporary Childcare Expenses
Childcare expenses due to temporary school closures may also be covered. These expenses may include babysitters or in-home care, distance learning curriculums and resources, and tutoring.

Emergency Funds and Funeral Expenses
Employers may assist employees with reasonable and necessary emergency funds to help with personal, family, living or funeral expenses.

Health-Related and Other Living Expenses
Unreimbursed medical expenses related to COVID-19 management including co-pays, over-the-counter medications as well as other living expenses like disinfectants, hand sanitizers, masks and gloves may be reimbursable.

Ineligible expenses include luxury or non-essential expenses as well as expenses that are reimbursed by insurance or another party. Wage replacements including leave pay, sick pay, or family medical leave pay are also ineligible.

Although a policy statement and claim verification process is not required, it is recommended to employers in order to prevent fraudulent claims and provide structure to the plan. A minimum or maximum reimbursement amount is not stipulated in the Code; employers may define the benefit limits as well as the eligible expenses for which they will provide reimbursement in a written policy statement. Qualified Disaster Relief payments are deductible for the employer and tax-free to the employee.

Flores will administer these plans for new and existing employer clients. Flores will provide a policy statement, plan communications, claims adjudication, as well as participant support from a dedicated account manager. Participants will also have access to our Participant Web Portal to view balances, make claims, email their account manager, and more.

For additional questions regarding this option, please contact your Business Development Partner or dedicated Account Manager at (800) 532-3327.

Resources:
SHRM: Employers Can Make “Disaster Payments” to Coronavirus-Affected Employees”
Cornell Law School Legal Information Institute: Section 139 IRS Code