COVID-19 Federal Assistance e311


Premium & Hazard Pay

Funding Source

American Rescue Plan Act

How will premium pay be taxed?

The Internal Revenue Service (“IRS”) released Frequently Asked Questions (“FAQ”) regarding the taxability and reporting of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”).[1]

IRS guidance states that premium payments are considered wages and therefore workers “must include the [premium] payment in gross income as compensation for services.”[2] This is the case “whether an amount is paid to [a recipient] by [its] state/local government, or by [its] employer, a payment that is in the nature of compensation for services is not excludable as a qualified disaster relief payment under section 139 of the Code.”[3]

From an employer perspective, premium pay payments are considered wages and employers must generally withhold federal income tax as well as social security tax and Medicare tax from employees’ wages.[4] Employers may also have to pay federal unemployment tax on the wages.[5]

Last Revised: April 1, 2022

[1] Internal Revenue Service: Frequently asked questions for states and local governments on taxability and reporting of payments from Coronavirus State and Local Fiscal Recovery Funds (Updated November 2021) - FAQ #1, available at:

[2] Id., at FAQ #2.

[3] Id.

[4] Id., at FAQ #3.

[5] Id.