Options for Disaster Relief Assistance for EmployeesOptions for Disaster Relief Assistance for Employees

The Coronavirus Aid Relief and Economic Security (CARES) Act has added to our tax lexicon COVID-19 distributions and loans. Because loans must be repaid and COVID-19 distributions are exempt only from the premature distribution penalty and not income tax, they’re imperfect solutions for employees. Employees at well-capitalized firms may have better options to receive financial assistance than borrowing or getting COVID-19 distributions. Specifically, does an employer have either a disaster relief fund or an employee relief fund (ERF)? Is one preferable to the other? Would it change the tax result for the employee-recipient? Would one source of funds meet a wider scope of employee needs?

Let’s examine the advantages and disadvantages of di...