Home working and other benefits could be at risk after Covid emergency declaration ends

The Covid-19 emergency declaration expires on 11 May 2023 – and there are certain tax implications.

A lot has changed during Covid-19, especially for employers. Some have closed their doors permanently, some have closed temporarily, and others have changed their work model to allow employees to work remotely. As employers tried to keep workers on the payroll, questions arose about how those decisions — including stipends and pay plans — would affect employees. Paying some of these costs would be beyond the marginal benefit, which would result in workers’ compensation, which was certainly not the desired outcome.

Article 139

The decision? It is found in Article 139 of the Tax Code. The section begins: “Gross income shall not include any amount received by the individual as qualified disaster assistance.”

And it does exactly that—allowing employers to help employees during a federally declared disaster without the result being taxable to the employee and fully deductible to the employer.


To get there, you must have a declaration. On March 13, 2020, President Trump declared Covid-19 a national disaster by Robert T. under the Stafford Disaster Relief and Emergency Relief Act. Among other things, it allowed taxpayers relief under Section 139.

Section 139 has been in place for more than two decades and was a direct response to the days following the 9/11 attacks. After the attacks, people wanted to help – so the Terrorism Victims Tax Relief Act of 2001 was signed into law by President George W. Bush on January 23, 2002. Among other things, the act created Section 139, which defines qualifying disasters and provides that taxes for disaster victims are excluded from income.


Recently, Section 139 was the reason why covid-related payments to employees did not appear on Form W-2. including, as defined by statute, payments or reimbursements that are “reasonable and necessary personal, family, living or funeral expenses,” as well as others. In practical terms, this translates to reimbursement for medical expenses (including Covid-19 tests and over-the-counter treatments), transportation expenses (especially ride shares like Lyft
when public transit was not available or reliable), dependent care expenses (as parents tried to find alternative care), and, perhaps most popularly, work-from-home expenses (including money for equipment upgrades and regular stipends for internet costs).

While there was no specific guidance from the IRS to say which Covid-19 expenses would (or wouldn’t) qualify under Section 139, most employers took common sense. One way to determine whether an expense would qualify as a qualified disaster payment was to think about whether the expense would have occurred if not for the pandemic. This was easy to answer when Covid-19 tests were a necessary part of returning to work, but what about now? For other expenses such as home internet and updated computer hardware.

You see the problem. Now that the emergency declaration is over, there is a dilemma for employers: stop the payments related to Covid-19, accept that they can be taxed, or determine whether they can be deducted under another section.

  • Stopping payments related to Covid-19, such as stipends for home internet, may be easier said than done. Employees are used to working remotely at the employer’s expense. Paying out of pocket for these services can be a deal breaker for some employees.
  • Continuing these benefits—but including them in compensation—could have the dual effect of a higher employee tax bill and increased employer costs. In particular, when the payment is linked to other benefits, such as pension plans, employers may have to pay more.
  • A more palatable option may be to investigate whether another portion of these benefits is deductible under another section, such as section 132(d).

Other advantages

Section 132(d)—sometimes referred to as the fringe benefits exception—allows tax-free property or services provided to an employee to the extent that, if the employee paid for such property or services, it would be allowable as a deduction under Section 162 of the Internal Revenue Code (Commercial or business expense) or under Article 167 (Depreciation).

This means that employers can provide employees with technical items such as computers under certain circumstances. They can also reimburse employees for telecommuting expenses, such as internet costs associated with working from home, under an accountable plan.

But Section 132(d) isn’t the only thing standing in the way of a bigger tax bill. Certain exemptions and exclusions from income may already apply to certain properties and services, such as minimum benefits available to employees, meal and transportation benefits, some tax-free.

Next steps

The end of the declaration will obviously bring some changes. However, don’t think that the Covid-19 provisions can simply switch from one tax-free characterization to another. Moving forward, employers should review their existing benefits, accountability plan, and compensation policies and ensure they continue to meet expectations—for employers, employees, and the IRS.

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