Tax-Free Qualified Disaster Relief Payments to Employees in Connection With COVID-19 Will End May 11, 2023

The Executive Office of the President, Office of Management and Budget, announced on January 30, 2023, that the COVID-19 national and public health emergencies declared in 2020 would end on May 11, 2023. As a result, COVID-19 cannot be the reason used to make tax-free “qualified disaster relief payments” to employees (or others) under Internal Revenue Code Sec. 139 for expenses incurred on and after that date.

This wind-down aligns with the administration’s previous commitment to provide at least 60 days’ notice prior to the termination of the public health emergency.

What is IRC Section 139?

IRC Sec. 139 disaster relief provision allows employers to help employees cope with personal, family, living, or funeral expenses incurred due to a qualified disaster by providing reasonable and necessary tax-free payments or reimbursements that are not otherwise compensated by insurance. COVID-19 is one such declared a national disaster.

When making tax-free payments under IRC Sec. 139, the payor must consider whether, “but for” the disaster (i.e., COVID-19), the expense would have been incurred. There was unquestionably general eligibility to use IRC Sec. 139 during 2020 and 2021. But satisfying that gateway test in 2022 and 2023 has become increasingly challenging, since daily life in the United States has mostly returned to normal (quarantines, social distancing, and face mask restrictions have mainly changed from mandatory to voluntary, schools and businesses are generally open, public gatherings are permitted in churches, theaters, sporting events, travel has generally resumed, etc.).

Next Steps

Employers currently using IRC Sec. 139 to exclude employee payments from taxable compensations reported on Form W-2 or 1099 may need to confirm that the expense continues to be incurred on account of COVID-19 and to revise their policies and procedures to begin withholding income and payroll taxes on such payments as of May 11, 2023, unless another IRC provision would allow the employer to treat the payments as tax-free. While IRC Sec. 139 did not require documentation of the expenses, other IRC provisions are likely to require documentation to obtain tax-free treatment.


Many expenses incurred by employees due to COVID-19 might have qualified for tax-free treatment under several IRC provisions. IRC 139 required the least amount of documentation and was relied upon often. For example, many employers reimbursed employees for home internet (and other work-from-home expenses) while working remotely due to COVID-19 quarantine mandates. Some of these same expenses qualify for reimbursement as a working condition fringe benefit and continue to be reimbursable tax-free under an accountable plan, provided the substantiation requirements are satisfied.


Since COVID vaccines, testing, and other pandemic management efforts have allowed most of the U.S. to return to somewhat normal operations, it has become more challenging to rely on IRC Sec. 139. However, all expenses treated as nontaxable under IRC Sec. 139 due to COVID-19 will lose that benefit as of May 11, 2023. The expense might qualify as a nontaxable reimbursement under other IRC provisions.

Written[CM1]  by Joan Vines and Norma Sharara. Copyright © 2023 BDO USA, LLP. All rights reserved.

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