Legislation to provide disaster tax relief, including tax exemption of wildfire settlement payments, passes out of House

The House recently passed H.R. 5863, The Federal Disaster Tax Relief Act. This bill includes Congressman Doug LaMalfa’s bill, H.R. 4970, Protect Innocent Victims Of Taxation After Fire Act, that will exempt wildfire relief payments from federal income taxes. Additionally, H.R. 5863 exempts the relief payments for losses that resulted from the 2023 East Palestine, Ohio train derailment and declares certain hurricanes as qualified for disaster-related tax treatments.

The legislation also includes Rep. LaMalfa and Rep. Thompson’s cowritten legislation, the Taxpayer Certainty and Disaster Tax Relief Act, which makes it simpler to write off losses from other natural disasters and includes provisions to exempt taxation on legal fees, emotional distress, lost wages, and additional living expenses regarding wildfire losses.

Once the bill is signed into law, any taxes already paid on wildfire settlement money since 2020 will be eligible for a retroactive refund by filing an amended return or claiming the change during the next tax year. The bill passed by a vote of 382-7.

In January 2024, the Federal Disaster Tax Relief Act and the Protect Innocent Victims Of Taxation After Fire Act were included in a larger bipartisan tax deal that expands the Child Tax Credit, increases supply of low-income housing by enhancing the Low-Income Housing Tax Credit, builds up Main Street by reducing bureaucratic paperwork and expanding the small business expensing cap, and improves trade agreements with Taiwan to bolster competitiveness with China.

Despite passing out of the House by a wide majority, 357-70, the Senate has yet to take up the package due to the non-disaster tax relief provisions. In order to speed up relief for disaster survivors, a bipartisan group of 218 Members of Congress advanced a discharge petition to require House Speaker Mike Johnson to bring H.R. 5863, the Federal Disaster Tax Relief Act, to the House floor for a vote.

“A vast group of bipartisan lawmakers want to see this legislation accomplished,” said LaMalfa. “Fire victims have been patient and waited more than long enough. The award money should not be an IRS taxable event. The House has now passed this initiative twice, and I will continue to move it forward until President Biden signs it into law.”