Bradley Arant Boult Cummings LLP
  August 12, 2020 - United States of America

IRS Confirms Use of COVID-19 Leave-Sharing Plans

The Internal Revenue Service (IRS) has recently published frequently asked questions addressing leave-sharing plans related to the COVID-19 pandemic. Following IRS Notice 2006-59, the IRS has confirmed that employers may set up leave-sharing plans to permit their employees to deposit leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by the COVID-19 pandemic. An employee who deposits leave under such a plan will not include the deposited leave in income or wages. However, the employee who deposits such leave may not claim an expense, charitable contribution, or loss deduction with respect to the deposited leave.

Notice 2006-59 provides guidance on the federal tax consequences of leave-sharing plans that are designed to assist employees affected by a major disaster declared by the president of the United States. Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. § 5170, provides that the president may declare an event a major disaster. Major disaster declarations for the COVID-19 pandemic have been issued for all 50 states, the District of Columbia, Puerto Rico, and certain U.S. territories.

Employers that establish leave-sharing plans should be aware of the requirements for such a plan:

  • The plan must allow a leave donor to deposit accrued leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster. For purposes of the plan, an employee is considered to be adversely affected by a major disaster if the disaster has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work.
  • The plan cannot allow a leave donor to deposit leave for transfer to a specific leave recipient.
  • The amount of leave that may be donated by a leave donor in any year generally cannot exceed the maximum amount of leave that an employee normally accrues during the year.
  • A leave recipient may receive paid leave (at his or her normal rate of compensation) from leave deposited in the leave bank; each leave recipient must use this leave for purposes related to the major disaster.
  • The plan must have a reasonable limit, based on the severity of the disaster, on the period of time after the major disaster occurs during which a leave donor may deposit the leave in the leave bank, and a leave recipient must use the leave received from the leave bank.
  • A leave recipient may not convert leave received under the plan into cash in lieu of using the leave; however, a leave recipient may use leave received under the plan to eliminate a negative leave balance that arose from leave that was advanced to the leave recipient because of the effects of the major disaster, and a leave recipient also may substitute leave received under the plan for leave without pay used because of the major disaster.
  • The employer must make a reasonable determination, based on need, as to how much leave each approved leave recipient may receive under the leave-sharing plan.
  • Leave deposited on account of one major disaster may be used only for employees affected by that major disaster.
  • Except for an amount so small as to make accounting for it unreasonable or administratively impracticable, any leave deposited under a major disaster leave-sharing plan that is not used by leave recipients by the end of the period noted above, must be returned within a reasonable period of time to the leave donors (or, at the employer’s option, to those leave donors who are still employed by the employer) so that the donor will be able to use the leave. The amount of leave returned to each leave donor must be in the same proportion as the amount of leave donated by the leave donor bears to the total amount of leave donated on account of that major disaster.


Employers must be careful to design their programs to meet all of these requirements.




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