Tax Relief Measures for People in Disaster Areas

When you are affected by a natural disaster, such as a storm or flooding, there are various federal tax relief measures available. For areas that are declared federal disaster areas, the IRS can postpone certain deadlines for filing returns or performing other time-sensitive actions for taxpayers who live in the area or have a business in the disaster area. The IRS can also waive penalties for failure to deposit employment and excise taxes. And interest and late-filing or late-payment penalties can be abated. If you lose your tax records as a result of a natural disaster and you need a copy of a prior year tax return, the IRS can waive the charge for sending you a copy.

You can find news releases on recent tax relief for disaster situations on the IRS website. There you can also look up previously issued tax relief by state. The news releases indicate the counties that are declared federal disaster areas and the specific tax relief measures available. According to the IRS, they automatically identify taxpayers located in the declared disaster areas and apply automatic filing and payment relief. If you are affected by a natural disaster but are located outside the covered disaster area, you can call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

According to the IRS, qualified disaster relief payments are excluded from your taxable income. These payments include reimbursements for reasonable and necessary personal, family, living, or funeral expenses; expenses of repairing or rehabilitating your home or repairing or replacing its contents; transportation due to death or personal physical injuries suffered in a disaster; and payments by a federal, state, or local government or agency in connection with a disaster in order to promote general welfare. These payments can be excluded from taxable income to the extent they are not covered by insurance or otherwise.

Payments you receive under the Federal Emergency Management Agency (FEMA) Individuals and Households Program are generally exempt from federal income tax. These payments include temporary housing assistance to rent a different place to live, or a government provided housing unit; and payments for necessary expenses and serious needs such as medical, dental, funeral, transportation, moving, and storage. These payments are excludible to the extent they are not covered by insurance.

Assistance payments you receive to repair or replace your home or its contents would reduce the amount of the casualty loss you can claim for the damages on Form 4684. And reimbursements you receive for medical expenses would reduce the amount you can claim as an itemized deduction for medical expenses.

As explained by Parman R. Green of the University of Missouri Extension, if you are a farmer, the crop insurance and disaster payments you receive as a result of crop destruction or damage, or the inability to plant crops because of drought, flood, or other natural disaster, can be deferred and reported as income the following year instead of the year you receive them. You must attach a statement to your tax return indicating that you are making this election under Internal Revenue Code Section 451(d). Your statement must identify the crops destroyed or damaged, the cause and dates of the destruction or damage, the names of the insurance companies that made the payments and the amounts, and a statement that under normal business practices the income from the crops that were destroyed or damaged would have been included in a subsequent year.

Your state may also have disaster tax relief measures. The state may offer tax relief measures similar to those provided by the IRS for federal taxes, or may establish its own relief measures. You could check your state's Department of Revenue or equivalent website for more information.

Sources:

FAQs for Disaster Victims - Mitigation Payments, IRS

Form 4684, Casualties and Thefts, IRS

Publication 17, Your Federal Income Tax, IRS

Publication 225, Farmer's Tax Guide, IRS

Publication 547, Casualties, Disasters, and Thefts, IRS

Tax Relief in Disaster Situations, IRS