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High winds and drought conditions have fueled severe wildfires, devastating communities around Los Angeles, California. The fires have destroyed thousands of homes and businesses, while firefighters are working tirelessly to gain control. On January 8, 2025, President Biden approved a “Major Disaster Declaration” for California.

For employers looking to support their employees in these challenging times, providing financial assistance is not just a kind gesture—it’s a powerful way to offer crucial support and help employees rebuild their lives. One effective way to provide assistance is through qualified disaster relief payments under Internal Revenue Code (IRC) section 139. These payments offer significant tax advantages, both for the employer and the employee.

What Are Qualified Disaster Relief Payments?

Qualified disaster relief payments are payments made to individuals to cover expenses incurred as a result of a qualified disaster. Under IRC section 139, such payments are not considered gross income for the recipient, meaning they are not subject to federal income tax. Additionally, these payments are not considered wages or bonuses, so they are not subject to other federal employment taxes or California income tax.

Key Requirements for Qualified Disaster Relief Payments

To ensure that disaster relief payments are tax-advantaged, the following requirements must be met:

  • The event must be a qualified disaster, such as the California wildfires, which are federally declared disasters.
  • The payments must be intended to cover out-of-pocket expenses attributable to the disaster. This includes expenses for food, housing, healthcare, childcare, and repairs to a personal residence.
  • The assistance must cover reasonable and necessary expenses, not lavish or extravagant ones.
  • The payments should not be intended as wage replacements or wage supplements.

Benefits for Employers

For employers, providing qualified disaster relief payments offers significant benefits. Qualified disaster relief payments made by employers are deductible as ordinary and necessary business expenses. This means that employers can reduce their taxable income by the amount of these payments, thereby lowering their overall tax liability. In addition, these payments are not considered wages or bonuses, so they are not subject to Social Security, Medicare, or federal unemployment taxes. Finally, employers are not required to report qualified disaster relief payments on Forms W-2 or 1099. This reduces the payroll tax burden for employers.

California State Tax Considerations

According to the California Employment Development Department, qualified disaster relief payments are not subject to California personal income withholding or reportable as wages for personal income tax purposes. However, they are subject to unemployment insurance withholdings, employment training tax, and state disability insurance withholdings.

Practical Steps for Employers

To determine who qualifies for the payments and the amounts to be paid, employers can take the following steps:

  • Assess immediate needs by asking employees about their urgent requirements and expenses incurred due to the disaster.
  • Evaluate property damage to determine if employees have suffered any and what expenses their insurance will cover.
  • Document eligibility by maintaining thorough records of disaster relief payment eligibility and ensuring proper documentation.

To ensure compliance and proper categorization of the payments, employers should clearly communicate the purpose of the payments by labeling them as “disaster relief payments” and explaining their intent to employees. Employers should also maintain detailed records of payment eligibility and request that employees retain receipts for any expenses covered by the payments.

By following these guidelines, employers can provide meaningful financial assistance to their employees affected by the California wildfires while taking advantage of the tax benefits offered under IRC section 139. For more detailed information regarding how your business can help employees during the wildfires, please contact Allison Scott, Sarah Hamill, Joanna Rivers, or your Husch Blackwell attorney.

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Photo of Allison Scott Allison Scott

Based in California, Allison concentrates her practice on employment litigation and counseling, assisting clients in virtually all areas related to labor and employment.

Photo of Sarah Hamill Sarah Hamill

Sarah guides clients through labor and employment strategies that will keep them in compliance with the law—and make them the best employers possible. She practices from San Diego as a member of our virtual office, The Link.

Sarah’s true passion is educating clients,

Sarah guides clients through labor and employment strategies that will keep them in compliance with the law—and make them the best employers possible. She practices from San Diego as a member of our virtual office, The Link.

Sarah’s true passion is educating clients, helping them develop compliance plans, and enabling them to effect positive change for their employees. She sees herself as just as much of a teacher as she is an attorney: her goal is to help clients understand employment laws and their implications so that they can implement best practices and do the right thing for their employees. She’s known not only for her intelligence, legal acumen, and work ethic, but also for her kindness and her gift for explaining complex legal concepts. First drawn to law and to her practice area by her interest in economic development, Sarah understands how important clients’ businesses are to them, to their workers, and to their communities, and she values the opportunity to help clients ensure that their organizations are excellent places to work.

At the beginning of her career, Sarah devoted two years to clerkships in the district courts and worked at a boutique appellate firm. While she no longer litigates, her early experience means that she is extremely well-versed in civil procedure and understands the nuances of litigation well. Her background gives her an inside perspective on where employment practices can go wrong and what proactive steps clients can take to stay out of court. She has previously defended clients in a variety of employment matters, including allegations of discrimination, harassment, and retaliation; wage and hour violations; and wrongful termination.

Photo of Joanna Rivers Joanna Rivers

Joanna focuses on labor and employment law.

Inspired by summers spent with her mother, a sheriff, at the Los Angeles courthouse, Joanna developed a deep passion for law. Joanna’s interest in law was further fueled by her involvement in speech and debate, mock

Joanna focuses on labor and employment law.

Inspired by summers spent with her mother, a sheriff, at the Los Angeles courthouse, Joanna developed a deep passion for law. Joanna’s interest in law was further fueled by her involvement in speech and debate, mock trial, and a semester at the public defender’s office during her undergraduate studies. During law school, she participated in a mediation clinic, where she honed her skills in active listening, empathy, and communication. She also served as a summer associate at Husch Blackwell, conducting research on employment matters, reviewing contracts, and observing mediations.

Joanna’s passion for labor and employment law is driven by a keen interest in trade secrets and non-compete agreements. She also defends clients in employment-related litigation. A judicial externship with the Arizona Court of Appeals provided her with valuable insights into the appellate and litigation processes, shaping her understanding of effective advocacy and the importance of clear, compelling legal reasoning.

Clients can expect Joanna to be efficient, reliable, and genuinely invested in their success. Known for her humility and dedication to continual learning, she stays informed about the latest legal developments and best practices. Joanna’s perspective as a first-generation attorney and an African American woman also enriches her practice, allowing her to approach each case with empathy and insight.