On December 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023. The law exempts from income tax qualified wildfire relief payments made to individuals.
Prior to the Disaster Tax Relief Act, some payments to disaster victims – such as settlement payments from utility companies – were considered taxable income. With many of his constituents affected by wildfires in 2015, 2017, and 2018, Rep. Mike Thompson of California’s 4th District sponsored the Disaster Tax Relief Act to ensure that wildfire victims were not taxed on settlement payments made by those who were not at fault for the disasters.
What You Need to Know:
If you received a payment due to a wildfire and that payment was previously included in your taxable income, you may be eligible for a tax refund. Contact your Pinion advisor to see if you qualify.
The Details:
Qualified wildfire relief payments to individuals are exempt from income tax if the payment is received between January 1, 2020 and December 31, 2025.
A qualified wildfire relief payment is a payment made due to a qualified wildfire disaster as compensation for losses, expenses, damages, living expenses, lost wages, personal injuries, death, or emotional distress.
Exclusions:
- Insurance reimbursements for the above costs are not covered.
- Payments for lost wages are not exempt if they are paid by the individual’s employer.
A qualified wildfire disaster is a federally declared disaster caused by a forest or range fire. The disaster must be declared after December 31, 2014.
Taking advantage of this relief depends on the tax year you receive the qualified payment. For tax years for which you’ve already filed a return, an amended return is required. If you receive a qualified payment in 2024 or 2025, payments will be excluded from calculating income on your original return.
