IRC Section 139 – Benefits for You and Your Employees in a “Disaster”

On March 13, 2020, President Trump issued a declaration, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, to declare the COVID-19 pandemic a federal disaster.  As a result of this declaration, employers are able to make payments to their employees that qualify as disaster mitigation relief payments. These payments will not be taxable to the individual receiving them and will remain deductible to the employer making the payments.

After September 11, 2001 a new statute, I.R.C. Section 139, was added to the Tax Code.  This code section was designed to allow individuals to receive tax free payments during qualified disasters.  A qualified disaster is defined as a disaster which results from a terroristic or military action, a federally declared disaster, or an event that is determined to be of catastrophic nature by the Secretary of Treasury.

Excludable qualified disaster relief payments include the following payments to or on behalf of an individual from any source, to the extent that expenses are not compensated for by insurance or otherwise:

  • payments to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of the disaster;
  • payments to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that such needs are attributable to a qualified disaster; 
  • payments by a person who furnishes or sells transportation as a common carrier by reason of death or personal physical injuries incurred as a result of a qualified disaster; or 
  • payments by a federal, state, or local government, agency or instrumentality to promote the general welfare, when the applicable federal, state or local authority, as determined by the Secretary of the Treasury, determines that disaster relief is warranted.

The exclusion does not apply to payments in the nature of income replacement, such as payments for lost wages, unemployment compensation, or business income replacement.  These items remain taxable (and deductible by payor).

During this pandemic, we have seen companies offer to reimburse their employees for many different items.  As long as the reimbursements are deemed necessary personal, family, or living expenses, they would qualify as Section 139 disaster relief payments. Although documentation rules are not specified, we recommend that you keep good records in the event of future questions.

As Employers are considering payments related to the COVID-19 pandemic, they need to determine the applicability of the qualified disaster payments rules. The last thing employers are trying to do under the current environment is to create an additional burden to their employees.

As companies begin to think about options for assisting their employers, they should consider all options for the best way to assist the employees and the communities in which they operate.

Please visit our Coronavirus resource page at for related content.


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