COVID-19-Related Employee Retention Credits: Special Issues for Employees: Income and Deduction FAQs

 

This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.

84. Are qualified wages excluded from gross income as “qualified disaster relief payments”?

No.  Section 139 of the Internal Revenue Code (the “Code”) excludes from a taxpayer’s gross income certain payments to individuals to reimburse or pay for expenses related to a qualified disaster (“qualified disaster relief payments”).  Although the COVID-19 outbreak is a “qualified disaster” for purposes of section 139 the Code, qualified wages are not excludible qualified disaster relief payments, because qualified wages are what an individual would otherwise earn as compensation, rather than payments to offset any particular expenses that an individual would incur due to COVID-19.

Section 139(c)(2) of the Code provides that for purposes of section 139 of the Code, the term “qualified disaster” includes a disaster determined by the President to warrant assistance by the Federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 – 5207. The President has made such a disaster determination for all 50 states, the District of Columbia, and all U.S. Territories.  A “qualified disaster relief payment” is defined by section 139(b) of the Code to include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.  Qualified disaster relief payments do not include qualified wages paid by an employer, even those that are paid when an employee is not providing services.

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