The IRS announced a new plan where an employee can “donate” their sick and vacation days to the relief effort. Essentially how it works is you donate your days (sick, vacation, or personal) back to your company, who in turn makes a cash donation to a qualified organization providing aid to the region. Your employer deducts that from their taxes and that donated time isn’t counted as income. Is this a “better” option than donating money? A little bit better but it’s (basically) the same to you, I’ll explain below.
For the purposes of this exercise, let’s say a day’s worth of time is worth $100.
Donate Vacation Days: If you donate a day of vacation, your employer deducts $100 from their income and your yearly income (and thus taxable income) is reduced by $100.
Donate $100: If you donate the money, you deduct $100 from your taxable income.
1. In the case of donating cash, you are taking $100 of post-taxed dollars out of your pocket, donating it, and then receiving the tax rebate next Spring. If you’re in the 25% bracket, you’re just giving a loan to the US Government of $25 (don’t worry, they need it). The actual dollar difference is miniscule (at 10%, it’s only $2.50).
2. In the case of donating a vacation day, your total yearly taxable income is lower and that has some additional small ripple effects. With a lower taxable income, 401(k) matching money from your employer also decreases. For example, the most I can get from my company as a match is 3% of my salary – I end up losing $3 matching if I donate $100 in vacation time.
The biggest difference is for your employer. They would be permitted to deduct your donation of days from their taxes if you opted to donate time, they wouldn’t be able to deduct anything if you donated straight cash. There are also other HR related issues (if you’re in contract labor, the number of hours you now work is greater because you don’t take a vacation day) and not within the scope of this brief analysis.
So basically, if you had to pick the two, I’d opt with the vacation day strategy because not only do you save you and the company a little scratch, you will be more productive at work (one extra day!). But in all honesty, as you see above, it makes little difference to you and a world of difference to someone else.