January 9, 2003 | Read Time: 1 minute
The IRS has ended a program that allowed employees to donate the value of their unused paid leave to charity without paying income taxes on the gift.
Following the terrorist attacks in 2001, the IRS made a special exception to income-tax rules that allowed workers to pay no income taxes on paid vacation, sick leave, or personal time that they gave up in exchange for the employer’s sending a donation to relief organizations.
Under the special program, the IRS temporarily suspended its “assignment of income” rules that are intended to prevent high-income taxpayers from shifting earnings to friends and relatives in lower tax brackets. Under those rules, donated leave is subject to income, Social Security, and Medicare taxes.
In Notice 2003-1, the IRS said the assignment-of-income rules are once again in effect for donations of leave to charitable organizations made after January 1, 2003.
The full text of the notice is available online by going to http://www.irs.gov/pub/irs-drop and clicking on the header “n-03-01.pdf.”
