In the wake of the COVID-19 pandemic and shelter-in-place orders, businesses are considering ways to assist employees and other workers who are financially burdened by the crisis. One simple and tax-favorable action is to make disaster relief assistance payments under Section 139 of the Internal Revenue Code.
Under Section 139, payments for personal, family, living, or funeral expenses incurred as a result of the COVID-19 pandemic are both tax-free to the individual recipients and tax-deductible expenses for the business. Payments are free of IRS reporting requirements and a plan can be quickly adopted with minimal expense.
Businesses large and small can take advantage of this favorable tax treatment to help their workers during these challenging times. With careful planning, even businesses that have had to reduce salaries or adopt furloughs may be able to implement such a financial assistance plan to help their hardest hit workers from the COVID-19 pandemic.