The IRS has announced relief for those impacted by Hurricane Harvey and Hurricane Irma.
Sponsors whose principal place of business is based in the disaster areas impacted by Hurricane Harvey whose Form 5500 would have been due (including extension, if filed) between August 23, 2017 and January 31, 2018 now have until January 31, 2018 to file their Form 5500. The same applies for those impacted by Hurricane Irma, with the January 31, 2018 extension applied for forms due between September 6, 2017 and January 31, 2018.
The IRS said in a statement that while the agency would automatically apply filing and payment relief to those in the disaster zone, affected taxpayers who live outside the disaster area should call to see if they qualify. The IRS Disaster Hotline number is: 866-562-5227.
Other IRS Relief
- Hardship Distributions:
Permitted for any hardship arising from Harvey or Irma, regardless of whether it meets the definition of an “unforeseeable emergency” under the tax rules
Permitted for participants when close family members have experienced a hurricane-related hardship (spouse, children, grandchildren, parents, grandparents, and other dependents)
- The requirement that participants be barred from making plan contributions for 6 months after taking a hurricane-related hardship distribution is waived.
- Plan Loan and Hardship Documentation:
Under certain circumstances, distributions permitted to affected participants can occur before the plan administrator assembles all the required documentation.
- Plans can provide hardship distributions and loans before the plan document includes a hardship distribution or plan loan provision, as long as the provision is added to the plan later and if acted upon in good faith (generally by December 31, 2018).
The general rules that impose income taxes and a 10% penalty tax on hardship distributions and plan loan defaults will continue to apply.
DOL Deposit Timing Relief
DOL rules require employers to forward participant contributions and loan repayments to the plan’s trust on the earliest date these amounts can be segregated from the employer’s assets. The DOL has stated that it will not seek to enforce claims under Title I of ERISA with respect to a temporary delay in forwarding such contributions and loan repayments caused by Hurricane Harvey or Irma.
Also, the DOL will not pursue a violation of the blackout notices solely due to the inability to provide the notice related to Hurricane Harvey or Irma.
The DOL recognizes that plan participants and beneficiaries may encounter difficulties meeting certain deadlines for filing benefit claims and COBRA elections. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits and take steps to minimize the possibility of individuals losing benefits due to failure to comply with pre-established guidelines.
The PBGC has extended the deadline for certain filings and premium payments for plan administrators and plan sponsors located in covered disaster areas to January 31, 2018. This relief covers any premium filing due date between August 23, 2017 and January 31, 2018, along with notices and plan asset distributions with standard and distress terminations of pension plans.
This does not provide relief for filings that involve information where there may be a high risk of substantial harm to participants or the PBGC insurance program, such as:
- Notices of large missed contributions under ERISA Section 302(f)
- Advance notices of reportable events
- Annual financial and actuarial information for certain controlled groups
Qualified Disaster Relief Payments
Generally, a payment by an employer to an employee is considered taxable income. However, employers can provide benefits on a tax-free basis to employees who are victims of Hurricane Harvey or Hurricane Irma under Section 139 of the Internal Revenue Code, which states that an employer can give cash or other benefits to assist employees in the case of a presidentially declared disaster. The payments are exempt from federal income tax and employment taxes, no substantiation is required from the employees, and the employer can deduct the payments.
President Trump declared the hurricanes as “federally declared disasters” under Code Section 165(h)(3)(C)(i), which also allows employers to make disaster relief payments to employees on a tax-free basis pursuant to Code Section 139 for the following purposes:
- To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a “qualified disaster”
- 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 the need for that repair, rehabilitation, or replacement results from a “qualified disaster”
NOTE: Qualified disaster relief payments do NOT include expenses that will be compensated by insurance or another source, nor are they a substitute for income replacement or lost wages.
Employers who make cash payments to a charitable organization described in Section 170(c) in exchange for vacation, sick and personal leave that an employee elects to forego will be entitled to a deduction as a business expense rather than a charitable contribution, as long as the donation is made to the charitable organization for the relief of victims of Hurricane Harvey or Hurricane Irma before January 1, 2019. The value of the donated leave will not be included in employees’ gross income.