Fla. Disaster Relief Payments from 2004 Hurricanes Not Subject to Federal Taxes

Disaster relief payments received from damages during last year’s Florida hurricanes are not taxable, the Department of Homeland Security’s Federal Emergency Management Agency (FEMA) reported.

The Internal Revenue Service (IRS) states on its Web site (IRS.gov) that “qualified disaster relief 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). No withholding applies to these payments.”

The IRS statements on the taxability of disaster grants instruct taxpayers not to “include post-disaster relief grants received under the disaster relief and emergency assistance act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants.”

However, the Web site does note that “unemployment assistance payments under the act are taxable unemployment compensation.”

According to the IRS, qualified disaster relief payments include payments one receives (regardless of the source) for the following expenses:

* Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a presidentially declared disaster.
* Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a presidentially declared disaster. A personal residence can be a rented residence or one an individual owns.
* Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a presidentially declared disaster.

Qualified disaster relief payments also include amounts paid to those affected by the disaster by a federal, state, or local government in connection with a presidentially declared disaster.