Tax Relief for Hurricane Katrina

A recent October issue of the Maine Tax Alert discussed Maine tax relief for taxpayers affected by Hurricanes Katrina and Rita. See www.maine.gov/revenue/publications/alerts/2005/2005oct-b.htm to read the full article. This issue of the Maine Tax Alert discusses the impact that employee contributions of sick, vacation and personal leave time for Hurricane Katrina relief has on Maine income taxes. Under an Employer Leave-Based Program (as defined by the Internal Revenue Service), employees may, through their employer, donate the value of sick, vacation and personal leave time (in lieu of cash contributions) for hurricane relief. Note that, as of the date of this issue, this special federal tax relief provision with respect to donated time does not apply to Hurricane Rita relief efforts.

Maine fully conforms to the federal tax treatment of donations of time to qualified Employer Leave-Based Donation Programs. As provided by federal law, contributions eligible for the special tax treatment must be made to a qualified relief organization prior to January 1, 2007. Because Maine conforms to the federal provisions, the value of vacation, sick and personal leave time donated by participating employees that is excluded from federal gross income is automatically excluded for Maine income tax purposes. These amounts are not federally deductible by the employee as charitable contributions, and, therefore, will not be deductible for Maine income tax purposes. In addition, with respect to employers, the value of donated time federally deductible as wages & salaries expense are treated the same for Maine income tax purposes. Because of Maine’s conformity to all of the federal Employer Leave-Based Donation provisions, and because the calculation of Maine taxable income for individuals and businesses is based on federal adjusted gross income (individuals) and federal taxable income (corporations), no adjustments need to be made on the Maine income tax return to account for the special tax treatment of time donated for hurricane relief.

For more information on the federal tax treatment of Employer Leave-Based Donation Programs, see the following links to the Internal Revenue Service web site:

www.irs.ustreas.gov/newsroom/article/0,,id=148114,00.html

www.irs.ustreas.gov/newsroom/article/0,,id=147085,00.html