Employee Benefits Blog

Posts tagged Hurricane Sandy

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Hurricane Sandy: Loans and Hardship Distributions

IRS Announces Relief from Certain Procedural Requirements Applicable to Retirement Plan Loans and Hardship Withdrawals

Qualified retirement plans are permitted to contain provisions allowing participants, under very specific terms and conditions set forth in the Internal Revenue Code and its related regulations, to (A) borrow from their defined contribution plan balances and/or (B) obtain hardship distributions of a portion of their defined contribution plan balances.  In Announcement 2012-44, the Internal Revenue Service relaxed several of these requirements to benefit participants and their families who live or work in areas devastated by Hurricane Sandy.

This relief applies only to loans and hardship distributions made on or before February 1, 2013.

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Hurricane Sandy: Favorable Rules for Leave-Sharing Plans

As discussed in our August 10, 2012 post on medical leave-sharing plans, employees are generally taxed on income that they earn and then assign to somebody else.  In IRS Notice 2006-59, the IRS created an exception in the case of certain leave-sharing plans under which employees transfer earned leave to an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster.  (This exception was created in the wake of Hurricane Katrina.)  In IR-2012-84, the IRS indicated that this treatment applies in the case of Hurricane Sandy.  Thus, for leave-sharing plans that meet the specific requirements of Notice 2006-59, the recipient of the leave, not the donor, is taxed on the forgone leave.

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Hurricane Sandy: Favorable Rules for Leave-Based Charitable Donation Programs

In general, employees are taxed on compensation that they earn even if they assign it to someone else, and they can claim deductions for contributions to charity only if they itemize their deductions.  Also, the deduction available to C corporations for charitable contributions is generally less favorable than the deduction for business expenses, in that the charitable contributions deduction generally cannot exceed 10% of the corporation’s taxable income.

In Notice 2012-69, the Internal Revenue Service relaxed all of these general rules for leave-based charitable contribution programs to benefit victims of Hurricane Sandy.  Under such a program, employees would elect to forgo vacation, sick, or personal time in exchange for cash donations by their employer to a Section 170(c) tax-exempt charitable organization for the relief of victims of Sandy.