Tax Relief After A Disaster
Federal Tax Relief Options
Federal Tax Relief Options
The government may offer multiple options to help people after a disaster with tax relief. Options may include:
- Tax Filing Extensions: The IRS may grant taxpayers affected by a natural disaster an extension of time to file their taxes.
- Tax Payment Extensions: The IRS may grant taxpayers affected by a natural disaster an extension of time to pay their taxes.
- Tax Penalty Relief: The IRS may waive or reduce penalties for those affected by a natural disaster.
- Tax Loss Relief: The IRS may allow taxpayers to claim losses from a natural disaster as a casualty loss deduction on their tax return.
- Tax Credit Relief: The IRS may allow taxpayers to claim certain credits, such as the Earned Income Tax Credit, for losses due to a natural disaster.
- Tax Refund Advance: The IRS may allow taxpayers to receive an advance on their tax refund if they have been affected by a natural disaster.
Types of Federal Tax Relief Available
Eligibility for disaster tax relief is generally based on the location of the taxpayer and the type of disaster declared. Generally, taxpayers who have been affected by a declared disaster are eligible for tax relief. Eligibility may also vary depending on the specific provisions of the disaster declaration.
When a disaster gets federally declared, the IRS issues press releases to taxpayers with disaster-specific relief information. This information includes the areas/parishes with the state that are impacted and whose residents are eligible for tax relief. This information also gives detailed guidance on who is considered a taxpayer and lists all the types of tax relief offered at the time.
The IRS provides disaster tax relief when disasters are federally recognized and disaster areas are designated by the Federal Emergency Management Agency (FEMA). Once a natural disaster designation has been made by the President, FEMA decides what areas are affected by it and whether an area gets assistance. Generally, the IRS only provides tax benefits to disaster areas designated as eligible for assistance. The IRS makes a separate assessment each time a disaster occurs to determine the level of tax relief necessary for taxpayers.
Tax relief is typically available in the form of extended filing and payment deadlines, penalty waivers, and other special provisions.
The IRS typically announces these provisions shortly after a disaster is declared.
When a federal disaster occurs and is declared, the IRS will issue special notices and news releases available on their website, detailing what deadlines are impacted, the length of the extensions, and eligible taxpayers to whom the extensions apply. The IRS has the authority to extend for up to one-year certain tax filing and payment deadlines that fall within the "postponement period." Some of these deadlines include filing tax returns; paying taxes; making refund claims; filing suits for refunds; filing Tax Court petitions, etc.
An eligible taxpayer may deduct certain losses suffered from federally declared disasters - called qualified disaster losses. A qualified disaster loss is an individual's casualty or theft loss of personal-use property attributable to a disaster declared under the Stafford Act. A casualty loss is damage, destruction, or loss of property attributable to a sudden event. Casualty losses are considered itemized deductions. Generally, taxpayers may choose either to take a standard deduction or itemize their deductions, whichever is best for their tax situation. In the case of federally recognized disasters, taxpayers can do both - take a standard deduction and itemize their qualified disaster loss.
The IRS offers eligible taxpayers an option to amend their prior year tax returns to obtain quicker relief within six months of the prior year's filing deadline. Amended returns must be paper filed with the IRS.
To learn more about disaster tax relief visit the resources:
The federal government may issue tax-exempt disaster assistance to taxpayers in designated natural disaster areas. This assistance takes the form of qualified disaster relief payments. Qualified disaster relief payments are not included in gross income or are subject to withholding if there is not a double benefit. The most common type of tax-exempt qualified disaster relief payment is assistance provided by FEMA.
Making withdrawals from retirement accounts usually comes with heavy tax consequences. An early distribution subjects the taxpayer to income tax liability as well as an additional 10% penalty for early withdrawal. Typically, the 10% penalty is not imposed if the taxpayer can show hardship, and if they are subject to a disaster declaration, they are deemed to have a hardship. This relief may be specific to each federally declared disaster, and eligible taxpayers should read the IRS notices published on the IRS website to determine which retirement plans are covered.
Disaster survivors often need to access past tax records to get basic relief. Many documents can get damaged due to a disaster. The IRS provided expedited tax return transcripts free of charge to disaster survivors.
State Tax Considerations
State Tax Considerations
- Options For State Tax Relief Following a Disaster
Disaster survivors can usually find state-specific relief and information from the Louisiana Department of Revenue following a disaster event. Often this can include options like extended filing and payment deadlines for those living within a federally declared disaster area.
State income tax is typically calculated from the data on the federal income tax return. Any qualified disaster losses claimed on the federal return would therefore lower the state tax liability. If taxpayers are amending any of their federal tax returns to reflect a loss then they should also amend their state tax returns.
To learn more about state tax issues after a disaster visit the resources: