Now that the waters are receding and we are all trying to get back to normal, we thought that we would start addressing some of the many legal questions surrounding the flooding disaster of 2016. Of course, we will focus on “tax” questions because that’s what we do.
The most common question we’ve been getting is: “Are my FEMA disaster relief grant payments going to be taxed by the IRS and LDR as personal income?” The short answer is “generally, they are not.”
The IRS has stated that qualified disaster relief payments (like FEMA grant payments) are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. These payments are not subject to income tax, self-employment tax or employment taxes (Social Security, Medicare and federal unemployment taxes). And, no withholding applies to these payments.
Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses:
• Reasonable and necessary personal, family, living or funeral expenses incurred as a result of a federally declared disaster.
• Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. (A personal residence can be a rented residence or one you own.)
• Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster.
Similarly, if the individual disaster assistance is excluded from federal taxable income, then the payment is also excluded from Louisiana state taxable income.
Please note, payments for expenses otherwise paid for by insurance or other reimbursements are not qualified disaster relief payments. These should normally be addressed on your individual tax return, but may be mitigated by your losses.
Additionally, income replacement payments — such as payments of lost wages, lost business income or unemployment compensation — are not qualified disaster relief payments. These are also normally included on your individual tax return.
Angela Bryson co-founded Lafayette-based Bryson Law Firm LLC with her husband Cary in 2001. The firm, which also has offices in Baton Rouge and Shreveport, focuses 100 percent of its practice on IRS and Louisiana tax resolution, employing a team of attorneys, CPAs and former IRS agents as part of its professional staff.