Leave-sharing programs allow employees to donate unused leave into a leave-sharing bank that can be used by other employees within the organization. Employees who have exhausted all their leave may apply to use some of the donated leave from the leave-sharing bank for medical emergencies or major disasters. It is important that all employers adopt a policy for each type of leave, such as a medical emergency and major disaster, before approving leave-sharing for that reason.
While these programs can be beneficial to employees, there are tax implications that should always be considered. It is possible that taxes on the donated leave will have to be paid by the donor. This will typically happen when the leave is used for reasons other than medical emergencies or major disasters. In this case, employer policy has not been adopted or doesn’t meet the necessary requirements.
In a medical emergency leave-sharing plan, unused donated leave is available only to employees who apply and have a medical emergency. A “medical emergency” is a medical condition of the employee or family member of the employee, that would require the prolonged absence from duty. This leave would result in a substantial loss of income to the employee because they would have exhausted all paid leave available. As long as certain requirements are met, leave may be donated and not have tax consequences on the donor.
In a major disaster leave-sharing plan, unused leave is available to employee adversely affected by a major disaster that has been declared by the President. If a plan is adopted and meets certain requirements, leave may be donated and not have tax consequences on the donor.
For questions about leave-sharing programs and the potential implications involved, please contact our tax experts at 301.231.6200.