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As reported from the Ways and Means Committee, the previous stand-alone bill, H.R. 5863, the Federal Disaster Tax Relief Act contains provisions, based on H.R. 4970, the Protect Innocent Victims of Taxation After Fire Act, which would shield liability compensation given to wildfire victims from taxation. Under that shield, payments would broadly be excluded from an individual’s taxable income if they were for damages, expenses, or losses incurred during a Federally declared wildfire disaster.

Payments from liability settlements for damages associated with a Federally declared wildfire disaster should be treated as non-taxable, just like all other forms of disaster aid. Without this protection, wildfire victims have, and will, face massive unforeseen tax bills while being left with less to rebuild their lives. In many cases, victims have, and will, be kicked off or ruled ineligible for benefits, like VA prescription assistance, Medicaid, healthcare exchange subsidies, Federal student loan assistance, or Supplemental Security Income because their adjusted gross income is manipulated to make them appear wealthy.

This issue has already affected tens of thousands of wildfire survivors and is likely to impact survivors in Oregon, who recently received similar liability settlements, as well as survivors in Colorado and Hawaii, which have ongoing lawsuits regarding two recent Federally declared wildfire disasters.