Payroll in Practice: 10.21.2024

Question: What relief is available for employers and employees affected by disasters?

Answer: During 2024 disasters have been declared in the aftermath of severe storms, intense winds, flooding, wildfires, tropical storms, dam bursts, terrorist attacks, and hurricanes.

As of mid-October, the IRS issued 97 announcements and reminders regarding disaster relief available for individuals and businesses. Relief provision coverage can extend to large reginal areas, such as the provisions for Hurricanes Helene and Milton. The relief provisions for these storms included extension of the due dates for certain tax and information returns to May 1, 2025, for affected taxpayers.

The listed disaster announcements included relief for more localized events. For example, the Oct. 11, 2024, notice regarding the July 10, 2024, Watch Fire that affected individuals and businesses of the San Carlos Apache Tribe in Arizona. It extended the due dates for filing 2023 tax returns, for which a valid extension was filed, to Feb. 3, 2025. This extended due date also applies to quarterly estimated tax payments normally due Sept. 16, 2024, and Jan. 15, 2025, and quarterly payroll and excise tax returns normally due July 31 and Oct. 31, 2024, and Jan. 31, 2025. In addition, penalties for failing to make payroll and excise tax deposits due on or after July 10, 2024, and before July 25, 2024, will be abated, as long as the deposits were made by July 25, 2024.

Some notices may update prior announcements, relate to events overseas, or apply to future events. For example, an announcement dated Oct. 1, 2024, described additional tax relief for individuals and businesses affected by recent terrorist attacks in Israel. This notice, along with Notices 2023-71 and 2024-72, postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Sept. 30, 2025, for taxpayers eligible for relief under both notices. For affected individuals and businesses, the due dates to file returns and pay taxes due during that period are extended to Sept. 25, 2025.

It is important for employers affected by disaster to periodically check the IRS Newsroom Disaster Relief pages for up-to-date information. The IRS also provides a list of notices pertaining to each state.

IRS relief frequently takes the form of more time to file returns and pay taxes as well as retroactive penalty abatement. Generally, the IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.

Other forms of relief include qualified disaster relief payments and special loan and distribution disaster relief rules for IRAs and certain retirement plans.
Section 139(a) of the Internal Revenue Code provides for disaster-relief payments. An employer may make qualified disaster relief payments of any amount to an individual to reimburse or pay personal, family, funeral, or living expenses connected with a qualifying disaster.

Qualified disaster relief payments also include payments for expenses incurred to repair a personal residence or replace its contents, payments made by a common carrier due to an individual’s death or physical injuries, and payments by a federal, state, or local government to promote the general welfare. Any such payments must be connected to a qualified disaster.

For this purpose, a qualified disaster includes any federally declared disaster. That is, any disaster determined by the president of the United States to warrant assistance by the federal government. Payments for expenses or losses otherwise compensated by insurance or other payments do not qualify for Section 139 relief.

Section 139 also exempts qualified disaster relief payments from payroll and self-employment taxes and exempts them from withholding requirements.

Revenue Ruling 2003–12 provides that payments made by employers to reimburse employees for expenses related to a qualified disaster are qualified disaster relief payments.

Furthermore, under the Joint Committee on Taxation Technical Explanation of Section 139, employees are not required to account for actual expenses provided that the payments can be reasonably expected to be commensurate with the expenses incurred. That is, employers may reasonably estimate their employees’ disaster related expenses without having to obtain detailed receipts and documentation.

Payments excludable under Section 139 are deductible by employers to the same extent they would be if they were included in employee income. Employers need not withhold or pay payroll taxes on these payments, include the payments on any employee’s Form W-2, or issue a Form 1099 to any employee.

Relief may also be available under special rules for loans and hardship distributions from an individual’s retirement plan, such as a 401(k) or 403(b) plan, or individual retirement arrangement. For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax, and the taxpayer may be able to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.