Work From Home And Other Benefits May Be At Risk After Covid Emergency Declaration Ends

Work From Home And Other Benefits May Be At Risk After Covid Emergency Declaration Ends

The emergency declaration for Covid-19 expired on May 11, 2023—and it comes with some tax consequences.

A lot changed during Covid-19, especially for employers. Some shut their doors forever, some closed temporarily, and still others modified their work model so that employees could work remotely. As employers scrambled to keep workers on the payroll, questions arose about how those solutions—including stipends and reimbursement plans—would affect employees. Paying some of those costs would go beyond fringe benefits, resulting in compensation to employees, which, of course, was not the desired result.

Section 139

The solution? It was found in section 139 of the Tax Code. The section begins, “Gross income shall not include any amount received by an individual as a qualified disaster relief payment.”

And it does precisely that—allows employers to assist employees during a federally declared disaster with the result being nontaxable to the employee and fully deductible to the employer.


To get there, you have to have a declaration. On March 13, 2020, President Trump declared Covid-19 a national disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Among other things, that enabled taxpayers to relief under section 139.

Section 139 has been around for over two decades—and was a direct response to days following the Sept. 11 terrorist attacks. After the attacks, people wanted to help—so the Victims of Terrorism 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 qualified disasters and provides that disaster relief payments for victims are excluded from income.


More recently, section 139 was the reason that some Covid-related payments to employees did not show up on a Form W-2. Those included, as defined under the statute, payments or reimbursements that are “reasonable and necessary personal, family, living, or funeral expenses,” as well as others. In practical terms, that translated to medical expense reimbursements (including Covid-19 tests and over-the-counter treatment), transportation expenses (especially ride shares like Lyft
when public transit wasn’t available or reliable), dependent care expenses (as parents scrambled to find alternative care), and perhaps the most popular, work-from-home expenses (including money to upgrade equipment and regular stipends for internet costs).

While there was no specific guidance from IRS to say exactly which Covid-19 expenses would (or would not) qualify under section 139, most employers took a common sense approach. One way to think about whether the expense would be considered a qualified disaster relief payment was to think about it in terms of whether the expense would have resulted if not for the pandemic. That was easy to answer when Covid-19 tests were a necessary part of return to work, but what about now? Ditto for other expenses like home internet and upgraded computer equipment.

You see the problem. Now that the emergency declaration has ended, there’s a dilemma for employers: cease Covid-19 related payments, accept that they might be taxable, or determine whether they might otherwise be deductible under another section.

  • Ceasing Covid-19 related payments, like stipends for home internet, could be easier said than done. Employees have grown used to working remotely on their employer’s dime. Paying for those services out-of-pocket could be a deal breaker for some employees.
  • Continuing those benefits—but including them in compensation—could have a two-fold result: a higher tax bill for employees and increased employer expenses. Specifically, when payment is tied to other benefits, like retirement plans, employers may have to pay more.
  • A more palatable option may be to explore whether these benefits might otherwise be deductible under another section—like section 132(d).

Other Benefits

Section 132(d)—sometimes referred to as the working condition fringe benefit exception—allows for 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 (trade or business expense) or section 167 (depreciation) of the Tax Code.

This means employers can provide tech items, like computers, to employees under some circumstances. They can also reimburse employees for remote work expenses, like internet costs related to working from home, under an accountable plan.

But section 132(d) isn’t the only out to prevent a bigger tax bill. Certain exemptions and exclusions from income might already apply to particular property and services—like de minimis benefits, meals, and transportation benefits available to employees—keeping some payments tax-free.

Next Steps

The end of the declaration is clearly going to bring about some changes. However, don’t assume that Covid-19 provisions can simply flip from one tax-free characterization to another. Moving forward, employers should look at their existing fringe benefit, accountable plan and reimbursement policies and ensure that they continue to align with expectations—for employers, employees, and the IRS.

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