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Provision providing tax-free fringe benefits expires May 11

Among the many forms of federal assistance provided to employers because of COVID-19 was the declaration of a national disaster on March 13, 2020. The declaration was renewed in 2021 and 2022. Although it was due to expire on March 1, 2023, President Biden extended the national disaster declaration to May 11, 2023. It is not anticipated the declaration will be further extended.


Internal Revenue Code section 139 provides an exception to the general rule that payments made by an employer to, or for the benefit of, an employee must be included in the employee’s taxable income and cannot be treated as a nontaxable benefit. Section 139, however, allows employers to provide direct financial assistance to employees impacted by a qualified disaster without being subject to federal income tax and payroll taxes. Section 139 was initially enacted in response to the Sept. 11 terrorist attacks and, subsequently, has been used to assist employees affected by natural disasters, such as floods and hurricanes.

Nontaxable disaster relief relating to COVID-19

During the national disaster period from March 13, 2020, through May 11, 2023, many employers relied on section 139 to make nontaxable qualified disaster relief payments to employees for reasonable and necessary expenses attributable to the coronavirus pandemic, payments that otherwise would not qualify for income exclusion as a de minimis or other form of fringe benefit. Eligible expenses included unreimbursed healthcare costs, increased child care or tutoring expenses, costs for medical supplies, transportation costs, home office expenses and other costs the employee would not have incurred but for the COVID-19 outbreak. National guidance does not require that employees account for the actual use of the payments.

Termination of national disaster declaration

With the May 11, 2023, expiration of the national disaster declaration, employers will no longer be allowed to offer nontaxable payments to employees for expenses related to the COVID-19 national disaster. If an employer is providing disaster relief payments under section 139, the employer should notify its employees that the favorable tax treatment will be ending. In addition, the employer should coordinate future tax treatment with payroll.

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For more information on this topic, or to learn how Baker Tilly tax specialists can help, please contact your Baker Tilly advisor.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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