In the wake of Hurricane Sandy, the IRS has issued a package of payroll, 401(k) and individual tax relief measures. This relief applies to individuals and businesses located in the disaster area, and to those whose tax records are located in the disaster area.
3Q and 4Q tax filing deadlines extended
Employers can file their third-quarter Forms 941 and fourth-quarter Forms 941, 940 and 945 by Feb. 1, 2013. The IRS will abate any interest, late payment or late filing penalties that would otherwise apply. Taxpayers located outside the disaster area, but whose books or tax professionals are located within the disaster area, are asked to call (866) 562-5227. (IR-2012-83)
Employees may cash out the value of their accrued leave for employer payments to tax-exempt Hurricane Sandy relief organizations. The cashed-out leave isn’t included in employees’ income, and employers can deduct those amounts as salary expenses or charitable contributions. Employees, however, can’t take charitable deductions for the value of the cashed-out leave. This tax relief applies to employers and employees throughout the country and to charitable contributions made by Dec. 31, 2013. (Notice 2012-69, IRB 2012-51)
401(k) plan loans and hardship distributions
Employees who live or work in Sandy-struck areas, and employees in other parts of the country with spouses, children, parents or other dependents whose principal residences or workplaces are located in the disaster area may take out hardship distributions or loans from their 401(k) plans. Distribution must be made by Feb. 1, 2013. This relief applies to plans that don’t normally provide for hardship distributions or loans, provided plans are amended by the end of the first plan year beginning after Dec. 31, 2012.
The IRS will allow plan administrators to rely on representations from employees regarding their need for, and amount of, hardship distributions, unless they have actual knowledge to the contrary. This relief also waives the rule that prohibits employees from making contributions into their 401(k) accounts for six months after receiving their hardship distributions.
Plans may also waive documentation requirements (e.g., spousal consent forms) prior to distributions, provided administrators make good-faith attempts as soon as practicable to comply with the plan’s terms and assemble the necessary documentation. (Announcement 2012-44, IRB 2012-49)