Americans are famous for their willingness to give to charitable causes, having given an estimated $335 billion to charitable organizations in 2013, according to Giving USA's 2014 Annual Report on Philanthropy. Health-based charities accounted for almost $32 billion of that giving, and with the recent outbreak of Ebola in West Africa, high-profile gifts like Facebook (NASDAQ:FB) founder Mark Zuckerberg's $25 million gift to the Centers for Disease Control and Microsoft (NASDAQ:MSFT) co-founder Paul Allen's $100 million pledge to charities including UNICEF, the International Red Cross, and Doctors Without Borders have inspired thousands of Americans to make their own efforts to help fight the disease.
The IRS recently made its own efforts to help fight Ebola, with some specific provisions designed to help people affected by the outbreak and to support individuals who are giving to the cause. But there are several things you need to know about the tax consequences of certain items connected to the Ebola outbreak. Let's take a look at two important steps the IRS has taken, as well as some ways for you to maximize your impact in the effort against Ebola.
1. Ebola is now a "qualified disaster"
In one of its official notices (link opens PDF), the IRS defined the Ebola outbreak in Guinea, Liberia, and Sierra Leone as a qualified disaster for tax-law purposes, opening the door to tax relief for certain people affected by the disease. The declaration gives those victims who receive disaster relief the ability to accept aid without having to treat it as taxable income, even if it comes from an employer or another source that would ordinarily be taxable.
The applicable provision in the tax code allows victims to receive financial aid for reasonable personal, family, living, or funeral expenses without having to declare it as taxable income. For instance, if a U.S. worker in West Africa has to receive medical care for Ebola, then that worker can accept financial assistance from an employer or from a third-party charitable organization without worrying about any adverse tax consequences. Similarly, if the worker has to relocate to a safer area, then any expenses connected to the relocation are also eligible for favorable tax treatment.
2. Workers can use leave-based donations to fight Ebola
The other major IRS notice (link opens PDF) addresses an innovative way some American workers can help support charities fighting Ebola in Africa. Under leave-based donation programs, companies allow workers to give up vacation or sick leave in exchange for having the cash value of their time donated to eligible charitable organizations.
Ordinarily, the IRS might argue that such donations should be taxed as employment income, forcing employers and employees alike to pay Social Security and Medicare taxes on the amount paid before then allowing an itemized charitable deduction to offset the income-tax ramifications of the gift. According to the terms of the IRS notice, employees aren't allowed to deduct the forgone income as a charitable contribution, but they won't be taxed on that money upfront, either. Moreover, the employer participating in the program is eligible to deduct those charitable cash payments.
Be smart about giving
As with countless disasters in the past, the danger of con artists taking advantage of people's generosity is high right now. Before you give money, it's important for you to verify that the charity you're trusting with your hard-earned cash is a legitimate operation that will provide real help to those in need.
The FTC recently issued a guide on how to avoid getting scammed by Ebola-related charity schemes. The guide urged donors to choose charities that you already know and trust, avoiding new charities that seem to have sprung up in direct response to the outbreak. Until you're certain that a charity is legitimate, don't share financial information like account numbers, and don't participate in text-based campaigns unless you can confirm the number directly with the supposed recipient of the funds. Moreover, giving cash is a no-no, as it leaves no clear record of your gift in case something goes wrong. Finally, check registries of legitimate tax-exempt organizations with the IRS as well as with the state's attorney general to make sure you're not giving to a group that's not on their lists.
Americans will continue to be generous, but it pays to be careful with your charitable giving. Otherwise, the efforts you're making won't lead to the good results you're hoping to achieve.