Section 139 Offers Opportunities for Businesses and Employees During a Disaster

Business leaders across the country, while struggling themselves, are looking for ways to assist their employees impacted by the COVID-19 pandemic. The concern for their employees is genuine—yet at some point, employers may ask “What are the tax consequences of this assistance?” and “Are there any tax issues or opportunities with this employee assistance?”

On March 13, 2020, the federal government declared the Coronavirus crisis a disaster, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. An employer can utilize Section 139, Disaster Relief Payment, of the tax law allowing employers to provide monetary assistance to its employees after a disaster. Under Section 139, an employee can receive tax-free relief payments, which the employer can deduct. These payments are deductible for the employer and not taxable to the employee. Further, an employer is also not required to report these amounts with their payroll returns, and the employee will not receive any tax documents.

Basics of Section 139

To be considered a qualified disaster relief payment, the monies given must be “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.” Reasonable and necessary expenses of an employee could include:

  1. Out-of-pocket medical and other health related items;
  2. Repairs to personal residence and replacement of personal property;
  3. Costs associated with childcare; or
  4. Food items.

Guidelines for Employers

Section 139 is a relief measure designed to assist employees impacted by a disaster. Thus, the burden on employers is not that stringent. The following should be considered and adhered to by employers establishing a Section 139 plan for their employees:

  • Program. An employer’s program does not need to be too elaborate. Essentially, it should spell out the objective of the plan for its employees, what expenses it covers, and how it will operate. A program or plan of several pages should be enough.
  • Documentation. No receipts are needed from employees to substantiate their expenses. Again, the goal of a Section 139 plan is to assist employees in the time of disaster or need.
  • Not Insurance. The amounts provided by the employer under their plan cannot be treated as income replacement type coverage or plan for employees. The amounts should also not be covered by another type of insurance.
  • All Employees. The employer’s payments should be available to all their employees.
  • No Services. The plan crafted by an employer should not require employees to perform services in order to receive any disaster payments. The thought behind Section 139 is that helping an employee is altruistic and not related or linked to the performance of any services. Further, Section 139 does not specify any dollar limitation on the assistance provided, but it should be reasonable and necessary in the circumstances.

Prior Application of Section 139

The Victims of Terrorism Tax Relief Act of 2001 created Section 139, which specifically states that the affected individual is not required to report such receipts as gross income. The situations in which Section 139 has been used or considered since it was enacted often involved natural disasters such as hurricanes, tornadoes, and flooding. Further, there has been little IRS guidance issued on Section 139 plans. The IRS did issue Revenue Ruling 2003-12 in 2003 that addressed Section 139 and the impact for employers and employees.

It is uncertain how the impact of the Coronavirus pandemic compares with other natural disasters and what expenses might fall under Section 139 as being reasonable and necessary. Employers should keep this “reasonable and necessary” clause in mind under the circumstances and not look to cover other expenses beyond what is listed above. Hopefully the IRS will issue guidance on these Section 139 plans and how to apply this in 2020 for COVID-19.


By declaring COVID-19 an emergency, Section 139 arrangements offer an additional way for businesses to support their employees. Now might be a good time for a business to consider creating a plan to assist its employees. Please contact your Sikich tax advisor if you have any questions.


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