As we all work to navigate the uncertainly around COVID-19, I wanted to share several articles and resources related to the tax implications for both employers and employees during the crisis.
Document Potential Business Interruption and Expense Due to COVID-19
An article from business consultants Conner Strong & Buckelew recommends that businesses consider five things when preparing for a potential business interruption:
- Prepare a timeline.
- Track and document key business metrics. *Attorneys should track all time spent dealing with COVID-19 issues.
- Track and document expenses that are related to the event (these may be new expenses or increased expenses as a result of the event).
- Track specific event related business activity, i.e. cancellations, customer complaints, returns.
- Compile a three year look back of financial data
Employers Can Provide Tax-Free Disaster Payments To Employees
An article from Forbes online on March 23 explains how employers can provide tax-free payments to employees affected by the crisis. The article cites Section 139 of the tax code noting that “Section 139 has yet to be used for a national pandemic.” Below is an excerpt from the article.
A reasonable interpretation of the statutory text, however, reveals that, at a minimum, the following payments from employer to employee should be treated as deductible to the employer and tax-free to the employee, provided the expenses relate to the COVID-19 pandemic:
- Medical expenses of the employee that are not compensated for by insurance (for example, the employee’s deductible and out-of-pocket expenses);
- The cost of over-the-counter medications and hand sanitizer;
- Funeral costs of an employee or a member of an employee’s family;
- The costs associated with enabling an employee to work from home throughout the pandemic, including the cost of a computer, cell phone, printer, supplies, and even increased utility costs of the employee.
- The cost of an employee’s childcare or tutoring for family members that are not permitted to attend school throughout the pandemic.