Leonard\'s home was damaged by a fire. He also had to be absent from work for se

Question

Leonard's home was damaged by a fire. He also had to be absent from work for several days to make his home habitable. Leonard's employer paid Leonard his regular salary, $2,500, while he was absent from work. In Leonard's pay envelope was the following note from the employer: To help you in your time of need. Leonard's fellow employees also took up a collection and gave him $900. Leonard spent over $4,000 repairing the fire damage.

Based on the above information, how much, if any, is Leonard required to include in his gross income?

Explanation / Answer

$2,500. Transfers from an employer to an employee cannot be excluded as a gift. However, victims of a qualified disaster who are reimbursed by their employers can exclude the payments from gross income under Section 139.

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