Can our company give employees disaster assistance outside payroll instead of paying taxable bonuses?
Qualified disaster-relief payments can be excluded from employee income when they meet Section 139, but replacing wages or lost income is not automatically…
By AE Tax Advisors Team · Updated October 29, 2026
Qualified disaster-relief payments can be excluded from employee income when they meet Section 139, but replacing wages or lost income is not automatically qualifying relief. Reasonable necessary personal, family, living or funeral expenses and qualifying home repair costs require a proper connection to a qualified disaster. Insurance reimbursements must be considered.
A specific business-owner situation
A company assists workers with temporary housing after a qualified disaster. A flat replacement for missed salary would raise a different question from assistance for qualifying unreimbursed expenses.
Illustrative example, not a client result.
What to establish before filing
- Confirm a qualified disaster.
- Define eligible expense categories and reasonable assistance.
- Separate wage replacement and reimbursed costs.
Which fact changes the answer?
A payment for necessary unreimbursed disaster living costs differs from general compensation. The actual purpose and statutory conditions determine exclusion.
A mistake to avoid
Do not relabel a normal bonus or salary payment as disaster assistance.
Records that support the decision
- Relief policy.
- Disaster and eligibility records.
- Payment purpose and reimbursement information.
The decision to document
Design and document the relief program before payment, with payroll separately handling taxable compensation.
Business-owner tax planning and preparation scope · Discuss advisory scope with AE
Related questions
- Our office is outside the disaster area, but our tax records were with an affected accountant. Can we request relief?
- Can our business claim a federally declared disaster loss on last year's return instead of this year's?
Sources and editorial context
- IRS: disaster-specific tax relief announcements
- IRS Publication 547: casualty losses and disaster elections
- Section 139: qualified disaster-relief payments
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.