Catastrophic Leave Programs: Eligibility, Donations, and Taxes

Catastrophic leave programs let coworkers donate their accrued paid time off to an employee who has run out of leave during a serious medical crisis. The donated hours keep the recipient on payroll during an extended absence, bridging the gap between exhausted personal leave and a return to work. Private employers design these programs voluntarily; the federal government operates its own version under statute. The mechanics are consistent across employers: donors give up accrued hours, recipients use those hours as regular paid leave, and the IRS treats the payments as taxable wages to the person who receives them.

Most programs follow one of two models. In the first, an employee donates hours directly to a specific coworker. In the second, donations flow into a central leave bank the organization draws from whenever someone qualifies. The pooled approach tends to be more equitable, because a recipient doesn’t need a wide circle of workplace friendships to get help. Either way, the employer acts as intermediary, transferring hours through payroll and paying the recipient at the recipient’s own hourly rate.

What Counts as Catastrophic

Employers define “catastrophic” in their own policies, but the threshold is universally high. The event has to require a prolonged absence and threaten your income because you have no paid leave left. A few weeks of recovery from a routine surgery wouldn’t qualify. A months-long cancer treatment, a traumatic brain injury, or caring for a child with a life-threatening illness typically would. The federal statutory definition captures the idea well: a medical condition likely to require prolonged absence and result in substantial loss of income due to the unavailability of paid leave.¹

Who Can Receive Donated Leave

The first requirement is almost always the same: you must exhaust all of your own paid time off before receiving donated hours. Sick leave, vacation, personal hours, and any other accrued balances need to reach zero. This keeps the program functioning as a safety net rather than a way to extend an already comfortable balance.

Beyond that, most programs require you to be a regular, full-time employee who has passed the initial probationary period. Some employers set that threshold at six months, others at a year. Part-time and temporary employees are usually excluded, though practices vary. A handful of programs also look at whether you’ve previously contributed to the leave pool.

The medical event has to be serious enough to keep you from doing your job for an extended period. Qualifying conditions typically include your own life-threatening illness or major injury, and many programs also cover absences to care for an immediate family member with a similar condition. In the FMLA context, “family member” covers a spouse, son or daughter (including someone for whom you serve in a parental role), or parent.² Many employer catastrophic leave programs mirror or expand on that definition.

Some employers also require that you have no active disciplinary actions on file. The program is built to support employees in good standing who were blindsided by a medical crisis.

How to Apply

Applying starts with medical documentation. You’ll need certification from a healthcare provider describing the condition, explaining why it prevents you from working, and estimating how long the absence will last. This resembles what the FMLA requires for a serious health condition: the provider’s contact information, when the condition began, its expected duration, and whether you’re unable to perform your job functions.³ Employers aren’t required to use a specific federal form for catastrophic leave, so most have their own version on their internal HR portal or in the employee handbook.

The application asks for your identifying information, the number of hours you’re requesting, and a justification connecting your medical situation to your inability to work. Getting the medical documentation right is where most delays happen. Vague certifications get sent back, so it’s worth having your provider be specific about the diagnosis, functional limitations, and timeline.

After you submit, a leave committee or HR director reviews the request. Turnaround times vary, but five to ten business days is a common range. The review checks whether your situation meets the program’s definition of catastrophic and whether the leave pool has enough hours to cover it. Approved hours generally post to your leave balance before the next pay cycle.

One point of confusion worth flagging: FMLA does not require you to sign a medical release authorizing your employer to contact your doctor directly.³ An employer’s internal catastrophic leave program, however, may include its own release form as a condition of approval. Read it before you sign.

Rules for Donors

Donors face requirements designed to prevent someone from giving away hours they might need themselves. Most programs require you to keep a minimum balance after donating. That floor varies by employer but commonly falls between 40 and 80 hours of remaining leave. Some employers set it higher.

Employers also cap how much you can donate in a year. Under the federal program, the ceiling is one-half of the annual leave you would accrue during the leave year.⁴ Private employers set their own limits, often either a flat number like 40 hours per year or a percentage of your accrual rate.

To donate, you complete an authorization form through payroll or an online portal. The form records the hours you’re giving up, and at most organizations the donation is irrevocable once processed. You can’t change your mind after the transfer clears, and you won’t get those hours back simply because you want them. Unused donated hours are treated separately, depending on the employer’s policy.

Whether your hours go to a named person or a central bank depends on the employer. Pooled donations sidestep the awkward dynamic where popular employees receive more support than equally deserving but less well-known coworkers.

How Donated Hours Are Paid and Taxed

When donated hours reach your leave balance, they convert to pay at your own hourly rate, not the donor’s. An hour donated by someone earning $60 an hour is worth exactly one hour of pay to a recipient earning $25 an hour. The employer isn’t moving money between employees. It’s moving time, and payroll values that time based on whoever uses it.

The tax treatment is governed by IRS Revenue Ruling 90-29. The recipient pays all federal income tax, Social Security tax, and Medicare tax on the donated leave as if it were ordinary wages. The employer withholds each pay period the same as it would for any other pay. The flat supplemental wage rate of 22% may apply, though employers processing donated leave through the regular payroll cycle often withhold at your normal W-4 rate.⁵

Donors face no tax consequences. You don’t report income you never received, and you can’t claim a charitable deduction or a loss for the hours you gave away. This holds whether you donate to a named individual or a central leave bank.

Payouts follow the normal payroll schedule, so the recipient sees a steady paycheck rather than a lump sum. If any donated hours remain unused after the recipient returns to work, most programs return those hours to the donors or the general pool. The federal program makes this mandatory: all unused donated leave goes back to the donors when the medical emergency ends.⁴

The Federal Voluntary Leave Transfer Program

If you work for the federal government, catastrophic leave isn’t just an HR policy. It’s a statutory entitlement under Title 5 of the U.S. Code. The Office of Personnel Management runs two versions: the Voluntary Leave Transfer Program, which allows direct donations to a specific employee, and the Voluntary Leave Bank Program, which pools contributions for distribution by a Leave Bank Board.⁶

To qualify as a leave recipient, you must have a medical emergency as defined by statute: a condition affecting you or a family member that is likely to require prolonged absence and result in a substantial loss of income because you have no paid leave available. OPM sets a concrete threshold for “substantial loss of income” at expected absence without paid leave of at least 24 work hours for a full-time employee.⁴ Your application must describe the nature, severity, and anticipated duration of the medical condition, and your agency can require physician certification.¹

Federal donors can give only annual leave, not sick leave, and the annual cap is half of the annual leave you would accrue during the leave year. If you have “use or lose” leave that would otherwise be forfeited at year-end, the cap becomes the lesser of that half-accrual amount or the hours remaining in the leave year for which you’re scheduled to work.⁴ Cross-agency donations are possible in limited situations, such as when the recipient’s agency determines internal donations won’t be enough or when the donor is a family member at another agency.

A recipient in the federal program must exhaust all accrued annual and sick leave before using any transferred leave.¹ When the medical emergency ends, unused donated hours don’t stay with the recipient; they go back to donors proportionally.

How Catastrophic Leave Interacts With Other Protections

FMLA

The Family and Medical Leave Act gives eligible employees up to 12 weeks of unpaid, job-protected leave per year for a serious health condition. FMLA doesn’t pay you anything, but it guarantees your job will be there when you return. Catastrophic leave, by contrast, pays you but offers no independent job protection. The two often run at the same time: you use donated hours to get paid during what would otherwise be unpaid FMLA leave. Once your 12 weeks of FMLA protection expire, your employer may still allow donated leave, but your right to return to your specific position depends on employer policy and any protections the ADA provides.

ADA

When FMLA leave ends, the Americans with Disabilities Act can sometimes extend your time away from work. The ADA requires employers to consider additional unpaid leave as a reasonable accommodation for a disability, as long as it doesn’t create an undue hardship for the employer. This applies even after you’ve exhausted FMLA leave, workers’ compensation leave, or any other employer-provided leave. The ADA does not require employers to provide paid leave beyond what their existing policy offers, but it can prevent them from firing you simply because you’ve used up a set number of weeks. Indefinite leave, where you can’t say whether or when you’ll return, qualifies as an undue hardship and doesn’t have to be granted.⁷

Disability Insurance

If you carry short-term or long-term disability insurance, receiving donated leave can affect your disability payments. Disability policies typically replace a percentage of your income only when you’re not receiving other pay. Because donated leave flows through payroll as regular wages, it counts as income, which may reduce or delay disability benefits. Some programs are designed to supplement partial disability payments rather than replace them, bridging the gap between what disability covers and your full salary. Check your specific policy before combining it with catastrophic leave.

Small Costs to Plan For

Applying is free, but the supporting documentation isn’t always. Copies of medical records can run from $0.25 to $2.00 per page depending on the state, plus potential search fees and certification costs. If your employer requires notarized forms, notary fees range from $2 to $30 per signature across states, with most falling around $5 for in-person notarization. Ask HR exactly which documents require notarization before paying for it. Many internal catastrophic leave forms do not.

1
Office of the Law Revision Counsel. 5 USC Chapter 63, Subchapter III – Voluntary Transfers of Leave
2
U.S. Department of Labor. Family and Medical Leave Act Advisor
3
U.S. Department of Labor. Information for Health Care Providers to Complete a Certification under the FMLA
4
Office of Personnel Management. Fact Sheet: Voluntary Leave Transfer Program
5
Internal Revenue Service. Publication 15 (2026), Employer’s Tax Guide
6
Office of the Law Revision Counsel. 5 USC Chapter 63, Subchapter IV – Voluntary Leave Bank Program
7
U.S. Equal Employment Opportunity Commission. Employer-Provided Leave and the Americans with Disabilities Act