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).