Congressmen Doug LaMalfa and Mike Thompson introduced legislation that would exempt thousands of fire victims who are receiving compensation from the Fire Victim Trust from having to pay federal income tax on their settlement money. Additionally, the legislation would prevent survivors from having to pay taxes on the attorney fees that are included in the settlement. These fees account for roughly 30 percent of the compensation, meaning that without this legislation survivors would be taxed on money that their attorneys keep. The Trust is a $13.5 billion settlement established in July 2020 for survivors of the 2015 Butte Fire, the 2017 North Bay Wildfires and the 2018 Camp Fire. Although the deadline to file 2021 taxes is April 18, 2022, this legislation would allow survivors to be awarded their exemption retroactively.
“Fire victims have lost homes, belongings, and for some, even their loved ones. We should not ask survivors to pay federal taxes on compensation that they will use to rebuild their lives. And we certainly should not be asking them to pay taxes on funds that are going to their lawyers — this would be double taxing the settlement dollars. I have heard firsthand the concerns survivors have faced when navigating the ambiguous tax code. This bill has been a long time coming, and I look forward to continuing this effort with Representative Thompson so survivors can finally get a financial reprieve,” said LaMalfa.
“I have heard from constituents across our community who are deeply, deeply concerned that they will face a tax burden upon receiving a payout from PG&E,” said Thompson. “This trust was set up to help people get back on their feet and recover after a destructive fire. They should not have to pay taxes on these payouts. I am proud to introduce this bill alongside Rep. LaMalfa to help our constituents receive the money they are owed, and will continue working to ensure survivors have the resources they need to recover from these tragedies.”
In January 2022, LaMalfa and Thompson led a bipartisan letter with other members of the California delegation to Internal Revenue Service Commissioner Charles Rettig to expedite and release tax guidance to help wildfire victims understand the taxability of their claims from the Fire Victim Trust.