Hurricane Disaster Payments Generally Tax Free
But Disaster Unemployment Compensation Reportable as Income
Release Date: February 8, 2006
Release Number: 1606-132
» More Information on Texas Hurricane Rita
AUSTIN, Texas -- Payments from the U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA) to individuals for hurricane relief generally are not taxable and don't have to be reported, according to the Internal Revenue Service.
Exemption for disaster assistance includes rental payments to individuals being transitioned from hotels to apartments; however, unemployment assistance is reportable as income and any disaster payments received fraudulently are taxable. Grants from state programs, churches and other charitable organizations usually are not taxable, as these payments are considered gifts.
The IRS said evacuees receiving disaster assistance should be able to provide documentation that they lived in federally declared disaster areas.
Tax relief provisions the IRS offers include delayed deadlines for filing tax returns and making tax payments; new rules for waiver of penalties for Individual Retirement Accounts (IRAs) and 401K withdrawals; help with reconstruction of tax records; and guidance on claiming casualty losses for unreimbursed property damage.
Casualty losses generally are deductible only in the year the casualty occurred. However, if victims have deductible losses from a disaster in a presidentially-declared disaster area, they can choose to deduct those losses on their tax returns for the year immediately preceding the year of the casualty. Only losses not covered by insurance are eligible for deductions.
Tax administration relief is automatic in counties declared federal disaster areas. The IRS encourages taxpayers in those areas to write "Hurricane Rita" or "Hurricane Katrina" in red at the top of any forms filed with the IRS.
The IRS said it may postpone the due date for filing income, employment tax, estate, gift and other taxes for one year for those who have been affected by a declared disaster. The IRS also may abate the interest on underpaid tax that would otherwise accrue for the period of the postponement.
Individual cases may vary and exemptions may not be available. Appropriate tax and financial relief assistance is being provided to those affected by Hurricanes Rita and Katrina at the IRS Hurricane Relief Hotline at 1-866-562-5227 . Information is also available on the IRS website, where links to IRS "disaster kit" publications can be found.
FEMA manages federal response and recovery efforts following any national incident. FEMA also initiates mitigation activities, works with state and local emergency managers, and manages the National Flood Insurance Program. FEMA became part of the U.S. Department of Homeland Security on March 1, 2003.
Last Modified: Thursday, 25-May-2006 14:17:08