Code Section 139 starts with this general rule: Gross income shall not include any amount received by an individual as a qualified disaster relief payment. In other words, your practice deducts any money paid out to you and selected staff under Section 139 while you and those staff members owe no taxes on amounts received.
For purposes of this section, the term ‘‘qualified disaster relief payment’’ means any amount paid to or for the benefit of an individual—
- to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster,
- to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster,
- by a person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a qualified disaster, or
- if such amount is paid by a Federal, State, or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare,
but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
Bloomberg Tax posted a very informative article about Section 139, including expenses that your practice can pay to you and your employees as a tax-free benefit, at: https://news.bloombergtax.com/daily-tax-report/insight-disaster-relief-payments-tax-efficient-assistance-to-employees-impacted-by-covid-19.
Dental Economics also posted a very informative article, including a template of a form to use to document the reimbursements you make to yourself and your staff at: https://www.dentaleconomics.com/money/tax-strategies/article/14186221/utilize-taxfree-covid19-reimbursements-for-you-and-your-dental-office-staff
Please read through these two articles and consider having your practice issue checks prior to December 31st reimbursing you and selected staff for unreimbursed medical expenses, home office expenses, increased childcare expenses, and other expenses that are considered “Ordinary and Necessary” during these unprecedented times. Please note that you are not required to prepare a written plan for this valuable employee benefit and can choose which employees to include in this tax-free benefit.