Skip Navigation

04.17.20   |   Insights

Qualified Disaster Relief Payments During the COVID-19 Pandemic

Share this

On March 13, 2020, President Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing COVID-19 pandemic.

While federal, state, and local governments have taken unprecedented action to combat the economic consequences of the pandemic, an existing provision in the tax code (Section 139) may also provide needed relief to the country. 

After the September 11th terrorist attacks, Congress added Section 139 to the Internal Revenue Code, which allows employers to assist employees during a federally declared disaster with “qualified disaster relief payments” that are tax-free to the employee and fully deductible to the employer. Section 139 is necessary because, in general, any payment from an employer to an employee, regardless of the intent of the employer in making the payment (even a “gift”), is taxed to the employee as compensation. Employers may consider taking advantage of the Section 139 disaster relief provisions to aid employees impacted by the COVID-19 pandemic. 

Qualified Disaster Relief Payments

A “qualified disaster relief payment” under Section 139 includes payments by an employer, not compensated for by insurance or otherwise, paid to or for the benefit for its employees to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. Section 139 has never been invoked for a disease pandemic. Although most guidance on Section 139 is in the context of hurricanes and other natural disasters, in analyzing the application of those principles to the current situation, the following types of payments and reimbursements from an employer to an employee could qualify under Section 139: 

  • Medical expenses not covered by insurance or otherwise;
  • Health-related expenses;
  • Dependent care expenses;
  • Remote working expenses;
  • Transportation expenses due to work relocation;
  • Critical care and funeral expenses of an employee or a member of the employee’s family, who dies from COVID-19; and
  • Other living expenses due to an employee’s known exposure to COVID-19. 

“Qualified disaster relief payments” do not include: 

  • Non-essential, luxury, or decorative items or services; or
  • Wage replacements payments such as sick pay, family medical leave, or any other type of salary or leave pay. 

Considerations for Employers

Employers interested in adopting a COVID-19 disaster relief program should consider the unintended consequences of such a program. For instance, employers should weigh the (i) administrative costs of implementing the program; (ii) costs associated with potential abuse of the program; (iii) privacy considerations if documentation is requested from the employee; and (iv) tax consequences under state and other non-federal laws. Thankfully, the IRS’s Section 139 compliance requirements are relatively lax and informal. Regardless, we recommended that employers adopting a COVID-19 disaster relief program, as a best practice, adopt a written plan or policy to make qualified disaster payments. Such plan or policy should outline: 

  1. Who is eligible for such payments;
  2. What expenses will be reimbursed or paid and whether there are limits on the amount of reimbursements or payments;
  3. Whether employees must provide receipts or other proof of their expenses to the employer to be eligible for payments; and
  4. How and at what time payments are made. 

Although Section 139 may not require employers to collect receipts or other proof of expenses incurred by employees, employers should consider such a policy to control costs and validate claims. 


In addition to the relief provided for in the Families First Coronavirus Response Act, CARES Act and other federal and state programs, Section 139 provides another option for employers to assist their employees during the COVID-19 pandemic. Although not discussed in this article, businesses can structure these qualified disaster relief payments in a number of ways, including direct payments to employees or indirect payments through controlled charitable organizations, public charities or donor-advised funds. Employers should consult their legal and tax advisors before undertaking a COVID-19 disaster relief program.

Ask a question

Fill out the form and someone will contact you within 1 business day.

Contact Us