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Leave-based Donations Easier Under Latest Irs Notice, CCH Says
(RIVERWOODS, ILL., October 31, 2001)
The Internal Revenue Service is making it easier for employees to donate the value of
their unused vacation, sick leave or personal days to charity, according to CCH
INCORPORATED (CCH), a leading provider of tax and payroll law information and software. A
leave-based donation program is a simple way for employees to benefit their favorite
causes by having their companies contribute the value of their unused leave to charity.
With the interest in charitable giving on the rise following the attacks of September 11,
employees and employers alike are considering such programs. But until now, IRS rules have
stood in their way.
"The rule was that if an employee donated
the wages for his or her leave to a charity, the employee would still be taxed on
it," said John Strzelecki, senior payroll analyst with CCH. "Even worse, if the
funds were made available without substantial restriction, the fact that employees were
given the opportunity to make that kind of donation meant that technically they could be
taxed on their unused leaves even if they didnt donate it a concept called
constructive receipt of income.
So at a company with a leave donation program, an
employee who carried over three days of unused vacation from one year to the next could be
subject to taxes on three days wages they hadnt received."
Thus, employers had no incentive and were
discouraged from setting up such programs as well, even though such deductions from
employees' paychecks are legal under the Code, according to Strzelecki.
A Simpler and Less Taxing Process
To make the process simpler and literally
less taxing for all concerned, the IRS in a recent notice stated that it will not
treat payments made under a leave-based donation program to a charitable organization by
an employer as gross income or wages of the employee. In addition, an employees
opportunity to forego leave will not make the unused leave taxable as "constructively
Employees making leave-based donations will not
be allowed to take them as charitable contributions if they itemize deductions of their
tax returns, but they wont be taxed on their generosity.
"The person at the IRS Ive talked to
sees a simple process. If youve got eight hours of leave coming and youre paid
$15 an hour, and your employer offers a donation program, you could donate $120 to
charity, with no withholding for income tax or payroll taxes. Your employer would simply
deduct eight hours from your leave bank," Strzelecki said. Simple as it seems,
the IRS is asking for comments on the taxation of leave-based programs, and the favorable
treatment will not necessarily last beyond the end of 2002.
"With the more favorable treatment, more
employers may be interested in starting such programs, but more questions may also be
raised about the nuts and bolts of how they work," Strzelecki observed.
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods,
Ill., was founded in 1913 and has served four generations of business professionals and
their clients. The company annually produces more than 700 electronic and print products
for the tax, legal, securities, human resources, health care and small business markets.
CCH is a wholly owned subsidiary of Wolters Kluwer North America.
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