Q&A: Can Church Employees Receive Tax-Free Assistance for COVID-Related Hardships?

Section 139 of the Internal Revenue Code allows you to offer nontaxable financial help for expenses directly related to the coronavirus.

Our church’s employees have experienced extreme financial hardships because of the coronavirus pandemic. Is it possible to offer them financial assistance without having to report these “benevolent funds” on their W-2s?

A church may not provide general benevolence to employees on a tax-free basis. However, Section 139 of the Internal Revenue Code allows employers to provide disaster assistance on a tax-free basis.
In March of last year, President Trump declared the COVID-19 outbreak a national disaster. If an employer has adopted a Section 139 Disaster Relief Plan, the employer may assist its employees for unusual expenses directly related to them having COVID.
For example, the employer may pay expenses related to their COVID infection or caused by their COVID infection. Expenses could include medical expenses related to the COVID infection not covered by insurance, such as medicines. Expenses could include extra COVID cleaning supplies.
Section 139 expenses could include extra childcare expenses incurred because the employee cannot care for their children without potentially infecting them. It might include tutoring expenses because the employee cannot help with their children’s homework.
COVID affects different employees differently, but all employees infected by or exposed to the virus must quarantine. If an employee can work remotely, then Section 139 expenses might include equipping the employee with a home office, including a computer, desk, chair, office supplies, and increased internet capacity while quarantined.
Some employees become seriously ill from COVID. Section 139 expenses might include the expense of a home healthcare provider. If the employee passes away from COVID, Section 139 might include the funeral expenses.
If the employee incurs legal expenses that arise from COVID, Section 139 might cover those legal expenses, such as drafting a healthcare power of attorney.
The regulations are not clear regarding whether an infected member’s family also allows for Section 139 benefits. When in doubt, consult with a tax expert about this and any other questions regarding Section 139.
While the regulations do not require a written plan, I strongly recommend a written plan so that the church complies with all the requirements to allow for tax-free benefits. I also recommend that an application be filled out by the employee so the church can document that the employee meets the Section 139 requirements.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

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