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July 05, 2006
Guidance Issued on Treatment of Donated Leave

Leave donated by an employee to an employer-sponsored leave bank following a major disaster is not considered income to that employee, as long as certain conditions are met, according to the IRS [Notice 2006-59].

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In general, the leave donated by an employee to a qualified leave bank will not count as income, wages, compensation, or rail wages to the donor, as long as the leave received by an affected employee is treated as wages for FICA, FUTA, and income tax withholding purposes, as compensation for purposes of the Railroad Retirement Tax Act (RRTA), and as rail wages under the Railroad Unemployment Repayment Tax (RURT), the IRS explains.

The notice outlines several requirements of a qualified major disaster leave-sharing plan, including that a donor can't designate a specific person to receive the leave; recipients must use the donated leave for time away from work due to severe hardship caused by the disaster; leave must be donated--and used--within a certain timeframe; recipients can't convert donated leave into cash; and leave donated in the aftermath of one disaster can only be used for employees impacted by that disaster.

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