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Tax Breaks in the New Hurricane Legislation for Employers and Taxpayers

Summary

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 provides a new favorable tax credit for eligible employers affected by recent hurricanes, as well as expanded charitable deductions and tax credits for certain taxpayers. 

In Depth

The recent Disaster Tax Relief and Airport and Airway Extension Act of 2017 provides a new favorable tax credit for eligible employers affected by Hurricanes Harvey, Irma and Maria, and provides expanded charitable deductions and tax credits for certain taxpayers. 

New Tax Credit for Hurricane Employers

Eligible employers whose trade or business became inoperable in a specified disaster area may take a tax credit of 40 percent of qualified wages (up to $6,000) paid to each eligible employee, which results in a maximum tax credit of $2,400 per employee. The employer’s trade or business must be in a county declared a major disaster area by the president of the United States. A list of such areas may be found at www.fema.gov/disasters. 

To be eligible, the employer also must have actively operated a trade or business on the qualified beginning date, and must have suffered an interruption in its operations before January 1, 2018. The qualified beginning date varies based on the specific hurricane:

  • August 23, 2017, for Hurricane Harvey

  • September 4, 2017, for Hurricane Irma

  • September 16, 2017, for Hurricane Maria

Eligible employees include those assigned to a principal place of employment in a hurricane disaster area on the qualified beginning date. For purposes of the tax credit, qualified wages means wages paid to an eligible employee during the period the business was first inoperable through the date significant business operations resumed, assuming such period falls between the qualified beginning date and January 1, 2018.

The tax credit applies to all qualified wages to an eligible employee, regardless of whether the eligible employee worked while the business was inoperable, worked at a different location while the principal place of employment was inoperable, or worked at the principal place of employment before significant operations resumed. However, the employer may not apply the hurricane tax credit on qualified wages to an eligible employee if the employer already applies another tax credit, such as the Returning Heroes and Wounded Warriors Work Opportunity Tax Credit, to the eligible employee.

Expanded Deduction for Charitable Hurricane Giving

The new law also removes many of the limits on charitable contribution deductions made to organizations in a disaster area. The expanded charitable deduction applies to both individuals and corporations. To take advantage of this expanded charitable deduction, charitable contributions must be made in cash between August 23, 2017, and December 31, 2017, to an organization that provides hurricane disaster relief, and not to an organization that exists solely to support other public charities or to donor-advised funds. The taxpayer also must make an election on his or her 2017 tax return, and the charity that received the contribution must provide a statement that the contribution was used for hurricane relief efforts. 

Expanded Hurricane Earned Income Tax Credit and Child Tax Credit

The recent hurricanes reduced earnings for a number of working families, who did not receive income when their employer’s business was damaged or destroyed or when their employer’s business was unable to open for a period of time. Qualified individuals who have a principal place of residence in a disaster area may maximize their Earned Income Tax Credit and Child Tax Credit by using their prior year’s income to compute these credits (if doing so results in a bigger tax credit).

© 2019 McDermott Will & Emery

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About this Author

Diane M. Morgenthaler, Corporate Tax Planning Attorney, Retirement Plans for Companies, McDermott Will Emery, Chicago Law Firm
Partner

Diane M. Morgenthaler focuses her practice on employee benefits and executive compensation. She represents clients in matters before the US Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corporation.

Diane serves as employee benefit counsel to Fortune 500 corporations and other global corporations, and represents both public and private clients. She regularly designs and implements a variety of employee benefit plans and programs. Diane has extensive experience in employee benefit issues involved in...

312-984-7676
stepanovic, chicago, associate
Associate

Rick Stepanovic focuses his practice on employee benefits and executive compensation matters. He has experience working on matters related to tax-qualified pension plans, health and welfare plans, and deferred compensation arrangements. He also has experience handling correction and administrative matters before the Internal Revenue Service and the Department of Labor.

While in law school, Rick was the Managing Editor of the Michigan Journal of Environmental and Administrative Law. He previously worked as a law clerk in the US Attorney’s Office for the District of Colorado and as a student attorney in Michigan Law’s Federal Appellate Litigation Clinic and Community Economic Development Clinic.

312-984-2054