NORTHSTATE, Calif. -- Victims of wildfires and other natural disasters will now have their settlement payments exempt from federal income tax.
President Biden signed H.R. 5863 Federal Disaster Tax Relief Act into law on Thursday, which includes Northstate Congressman Doug LaMalfa's bill, H.R. 4970 Protect Innocent Victims of Taxation After Fire Act.
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Rep. LaMalfa says the legislation also streamlines the process for deducting losses from various natural disasters and allows tax exemptions on legal fees, emotional distress, lost wages, and other wildfire-related losses.
His office also said that taxpayers will now be able to claim refunds for any taxes paid on wildfire settlement funds since 2020 by filing an amended return or claiming the change in the next tax year.
"After our visit with the president and Mrs. Biden at the White House Christmas Ball this week, I appreciate the President's timely signature after his recent return from Africa on our important disaster tax relief bill," said Congressman LaMalfa. "I am thankful to all who have helped Congressman Thompson and I get this bill signed into law. I am hopeful that we can get refunds out to those who were needlessly forced to pay the tax in recent years. Our office stands ready to assist if needed with the IRS processing these refunds and reducing ongoing fire risk to all of our forested areas and neighbors."
The newly signed bill allows amended tax returns to be filed by taxpayers who qualify for wildfire payment tax relief, up to a year after enactment. This is a change from previously being limited to three years after filing a tax return.
LaMalfa says it also shields payment recipients from losing certain government benefits because the government misinterpreted disaster relief money as an income windfall.
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This applies to both Fire Victim Trust claimants and any wildfire payments received between 2020-2025 for disasters that happened after 2014.
An estimated $512 million in taxes will be returned to wildfire victims and survivors.