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

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 ...