Workforce Bulletin

The wildfires moving through Southern California have destroyed communities and displaced countless individuals. While the nation’s first responders are tirelessly working to contain and neutralize the devastation, many employers are grappling with how best to provide support for their affected employees.

Disaster Assistance to Employees

Employers may consider offering the following disaster assistance directly to employees:

• Qualified Disaster Relief Payments: Under Section 139 of the Internal Revenue Code of 1986, as amended (the “Code”), employers operating in states such as California, receiving FEMA assistance can make tax-free qualified disaster relief payments directly to impacted employees. The payments can be made for reasonable and necessary personal, family, or living expenses as a result of a qualified disaster. Funeral expenses as a result of a qualified disaster will also qualify under these payments. However, employers should be aware that these payments do not cover income replacement payments or expenses reimbursed through insurance of FEMA grants.
• Charitable Emergency Funds: Employers may provide tax-free emergency funds to employees through related 501(c)(3) charities and foundations. The specific rules and requirements for these 501(c)(3) entities, including whether and to what extent contributions are deductible, differ depending on whether the entity is an employer-sponsored public charity, an employer-sponsored private foundation, an employer-sponsored donor advised fund, or an unrelated public charity.

On December 23, 2024, President Biden signed two bills intended to ease the burden of reporting under the Affordable Care Act (“ACA”) for health plan sponsors and health insurance providers.  The new laws also give employers more time to respond to proposed penalty assessments for ACA coverage failures, and establish a statute of limitations for the IRS to make such assessments.