Whether it’s a natural disaster, mass shooting, illness, or other emergency, people want to help each other. A leave bank, sometimes referred to as a leave-sharing program, leave-donation program, or PTO donation program, is generally a pool of employees’ sick, vacation, or personal leave time they have donated to be used by others. Under the program, other employees, who need to take more time than they have accrued, can use the leave bank for medical emergencies or natural disasters.
These plans may benefit both the employer and employee through increased employee morale and a more robust organizational culture. Additionally, these types of leave-sharing programs may contribute to higher productivity and reduced absenteeism.
There are two ways time off can be donated without tax consequences to the employee donating the time. They are the medical emergency exception and the major disaster exception. Please see below for details on these exceptions and consult a tax advisor before implementing them.
MEDICAL EMERGENCY LEAVE SHARING
Per IRS Ruling 90-29, Leave Sharing Plans for Medical Emergencies are allowed, with several conditions:
- Recipients are limited to eligible employees to accrue the PTO or other donated leave.
- Recipients are required first to exhaust all other PTO or paid leave.
- The applicable medical emergency must require a prolonged absence.
- All recipients must use the donated leave for purposes related to the medical emergency and return any excess to the leave bank.
DISASTER LEAVE SHARING
Employers can create a tax-favorable leave-sharing plan to be used explicitly by employees adversely affected by a major disaster or emergency declared by the President. Not only must the program be written and shared with employees, but it must also satisfy a list of requirements. Notice 2006-59 shared the requirements and describes how leave-sharing plans used during a major disaster will not result in adverse tax consequences.
If you are interested in setting up a leave-sharing plan, please reach out to us for assistance. We have resources and consultants that can guide your organization.
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