Leave Donation Program

A leave donation program lets employees give some of their accrued paid leave to a coworker who has run out of leave during a serious situation, most often a medical emergency. You may also hear it called leave sharing or a leave bank.

The employer sets the program up and sets the limits. The point is to help someone avoid an unpaid gap when they cannot work. Because donated leave turns into wages for the person who receives it, the payroll and tax rules matter as much as the policy language.

How Does a Leave Donation Program Work?

There are two common models. In a leave bank, employees deposit hours into a pool, and the employer approves applications from the pool. In a direct donation model, a donor gives hours straight to a named coworker, with employer approval.

The federal government runs the second model for its own staff. Under the Voluntary Leave Transfer Program, a covered employee can donate annual leave directly to a recipient with a medical emergency. Donors may give no more than one-half of the annual leave they would accrue in the leave year.

Private employers can borrow ideas from that structure without copying every rule. The federal model is a useful reference, not a requirement for your plan.

Who Can Receive Donated Leave?

Most programs limit recipients to people with a medical emergency who have used up their own paid leave. In the federal program, a medical emergency is a condition of the employee or a family member that is likely to require a prolonged absence and cause a substantial loss of income.

For a full-time federal employee, that means at least 24 work hours of absence without paid leave available. You can set your own threshold, but write it down. Clear criteria keep decisions consistent and protect you from claims of favoritism.

How Is Donated Leave Taxed?

IRS Notice 2006-59 summarizes Revenue Ruling 90-29, which addresses medical emergency leave-sharing plans. Amounts the employer pays to a recipient are gross income and wages for FICA, FUTA, and income tax withholding. Donors do not realize income or incur a deductible expense or loss when they surrender leave.

The ruling applies only to bona fide employer-sponsored leave-sharing arrangements. So the plan should be written and run by the employer, not handled as an informal gift between coworkers.

Notice 2006-59 itself covers a separate case, plans that help employees affected by a major disaster declared by the President. Ask a tax adviser which rules fit your program before you launch.

What Rules Should the Policy Set?

Decide the limits before the first request arrives. Waiting until an emergency is the hardest time to make fair decisions.

• Which leave types can be donated, such as vacation or PTO but not sick leave
• How many hours a donor can give and whether donors must keep a minimum balance
• Who qualifies as a recipient and what counts as a medical emergency
• How to apply, who approves, and how medical information is kept private
• What happens to unused donated hours, such as returning them to donors
• How payroll will handle the recipient's pay and withholding

The federal program returns unused leave to donors when the medical emergency ends. That is one option you can adopt.

How Is a Leave Donation Program Different From Paid Family Leave?

Paid family leave is a benefit set by state law in some states, with its own eligibility rules and pay amounts. A leave donation program is something an employer chooses to run, and the leave comes from coworkers' own balances.

The two can work together. A recipient might use a state program first and then draw on donated hours to cover the gap. See the paid family leave entry for how state programs compare.

How Does HR Cloud Fit Into a Leave Donation Program?

HR Cloud's time off tracking software supports custom leave types, each with its own policy and balance. Its audit history records requests, approvals, denials, and balance adjustments, which helps document each transfer.

The page does not mention leave donation or leave sharing, and it does not describe a built-in donation workflow. HR decides the rules and handles the balance adjustments, while payroll handles tax treatment.

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Frequently Asked Questions

Q: What is a leave donation program?

A: It is an employer program that lets employees donate accrued paid leave to a coworker who needs time off for a serious reason, such as a medical emergency.

Q: Is the donor taxed on donated leave?

A: Under Revenue Ruling 90-29, as summarized in IRS Notice 2006-59, donors in a bona fide medical emergency plan do not realize income when they surrender leave.

Q: Is the recipient taxed on donated leave?

A: Yes. Amounts paid to a recipient are gross income and wages for FICA, FUTA, and income tax withholding.

Q: Can donors claim a tax deduction?

A: No. The ruling says donors do not incur a deductible expense or loss when they donate leave.

Q: Are employers required to offer a leave donation program?

A: No. It is a benefit employers choose to create. The federal government runs one for its own employees under the Voluntary Leave Transfer Program.

Q: What happens to donated leave that goes unused?

A: That depends on your policy. The federal program returns unused leave to donors when the medical emergency ends.