14 Mar Disaster Relief Payments as a Result of January Earthquakes

Posted at 17:27h in News by

As experienced after Hurricane María, the PRTD issued Internal Revenue Circular Letter No. 20-08 (“CC 20-08”), providing for a temporary exclusion of gross income to certain disaster relief payments made by an employer to an employee as a result of the January Earthquakes.

As defined by the PR Code, a Disaster Relief Qualified Payment (Qualified Payment) will be the amounts paid to, or for the benefit of, an individual for:

  1. the reimbursement or payment of reasonable and necessary personal or family expenses, such as food, medicines, fuel, lodging, medical expenses, child or dependent care, generator acquisition, and funeral expenses incurred as a result of a Declared Disaster by the Governor of Puerto Rico,
  2. the reimbursement or payment of reasonable and necessary expenses incurred for the repair or rehabilitation of the principal residence, or repair or replacement of its contents, to the extent that the need for such repair or replacement is attributable to a Declared Disaster by the Governor of Puerto Rico, even if such payment is made directly to the service provider or seller,
  3. economically assist with the cost of any damages or loss incurred due to the Declared Disaster by the Governor of Puerto Rico,
  4. payments assistance made by the Federal, State, or local government, or agency or instrumentality thereof, in connection with damages caused by the Declared Disaster by the Governor of Puerto Rico, but only to the extent that such payment is not otherwise compensated for by insurance or otherwise.

 

In order for a Qualified Payment to be exempt from income tax, according to CC 20-08, such payment must comply with the following requirements:

  1. it must be made between February 1, 2020 and April 20, 2020 (the Eligible Period),
  2. the total amount paid shall be in addition to the compensation ordinarily received by the employee;
  3. the payment shall not be discriminatory, meaning that it shall not be made in favor of highly remunerated employees;
  4. the payments made shall be subject to the following limitations:
    1. shall not exceed $2,000 per month for each employee or independent contractors; and
    2. shall not be attributable or related to the job position or salary received by the employee.
  5. the total Qualified Payments by employee or independent contractors during the Eligible Period shall not exceed $4,000.

For purposes of the above Qualified Payments limitations, all the payments should be considered, even if made directly to the individual, or to a seller or business provider for the benefit of the individual.

Be aware that, the Qualified Payments shall also be reported as exempt income on Form 499R-2/W-2PR or Form 480.6D for independent contractors, as applicable.

FPVG INSIGHT: Be aware that this amount might be subject to payroll taxes such as FICA or FUTA.

INTEREST FREE LOAN

Also, CC 20-08 provides for an exclusion on income on any loan made by an employer to its employees or to independent contractors during February 1, 2020 and up to April 20, 2020, in order to assist with the necessary and reasonable expenses incurred by them or their family for:

  1. the reimbursement or payment of reasonable and necessary personal or family expenses, such as food, medicines, fuel, lodging, medical expenses, child or dependent care, generator acquisition, and funeral expenses incurred as a result of a Declared Disaster by the Governor of Puerto Rico,
  2. the reimbursement or payment of reasonable and necessary expenses incurred for the repair or rehabilitation of the principal residence, or repair or replacement of its contents, to the extent that the need for such repair or replacement is attributable to a Declared Disaster by the Governor of Puerto Rico, even if such payment is made directly to the service provider or seller.

However, the following conditions should be met:

  • The loan should be an interest-free loan.
  • The total amount of the loan(s) made by the employer should not exceed $20,000 in the aggregate during the referred period.

Note that the loan(s) could be offered by the employer, in addition to the Qualified Payment for Disaster Relief mentioned above.

Please contact us for additional information or assistance.

 

READ THE ORIGINAL PUBLICATION FROM PRTD