Federal and State Tax Relief during Natural Disasters

Federal and State Tax Relief during Natural Disasters

Hurricane Harvey made landfall along the Texas coastline in late August 2017, destroying thousands of homes and workplaces. Due to the catastrophic flooding and other difficulties facing people who were affected by the hurricane, it is likely that many of them will be unable to fulfill their outstanding obligations, especially tax obligations. As a matter of public policy, it is understandable that people who lost their homes and businesses in the storm are wholly incapable of doing so. As a result, there are several federal and state resources to help U.S. taxpayers manage these kinds of difficulties.

Tax Relief for Victims of Hurricane Harvey

At the federal level, the IRS announced that tax relief for victims of Hurricane Harvey will be provided to affected taxpayers. This tax relief permits the IRS to postpone certain deadlines for taxpayers who reside or have businesses in the disaster area. The IRS gives affected taxpayers until January 31, 2018 to file most tax returns that have either an original or extended due date occurring on or after August 23, 2017, and before January 31, 2018.

The definition of an “affected taxpayer” includes individuals who live in the disaster area, and businesses whose principal place of business is located in the disaster area. Taxpayers located in the covered disaster area are automatically identified by the IRS and will be granted automatic filing and payment relief. However, for those who reside or have businesses outside of the covered area, the IRS implemented a hotline in order to allow them to request this tax relief if they are otherwise affected.

Affected taxpayers should also be aware that they can claim disaster-related casualty losses on their federal income tax returns for 2017. For example, individuals may deduct personal property losses that are not covered by insurance or other reimbursements.

Qualified Disaster Payments

The tax code encourages employers to help their employees who are facing the consequences of a qualified disaster by suspending income and payroll tax consequences when employers make a qualified disaster relief payment to their employees. A qualified disaster relief payment is defined as any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary expenses such as personal, family, funeral expenses, or expenses incurred for the repair or rehabilitation of a personal residence or its contents. However, this measure applies only to the extent that such payments are not covered by insurance.

Employers should also note, in particular, that disaster relief payments do not include payments of lost wages, lost business income, or unemployment compensation.

State Extensions to File Tax Returns

Texas Comptroller Glenn Hegar announced that taxpayers in declared disaster areas affected by Hurricane Harvey can postpone paying state taxes while they recover from storm-related losses. Extension requests are handled on a case-by-case basis and may be granted for up to 90 days for a business affected by a declared disaster. A hotline has been created to receive extension requests from taxpayers.

In addition, Texas law exempts certain recovery-related expenses from sales tax, including the cost of labor to repair storm-damaged, nonresidential property, including office buildings and stores (although labor charges must be separately stated on the repair bill), and services used to restore storm-damaged tangible personal property, including dry cleaning of clothing and draperies, rug and carpet cleaning, and appliance repairs regardless of whether the property is residential or commercial.

Tax Relief in Florida

In September 2017, the State of Florida was hit by its own wave of storms that also ravaged the Caribbean islands. Hurricane Irma caused extreme flooding along the state’s entire peninsula, resulting in extensive property damage and broad power outages. The IRS has announced that the tax relief that is provided for Harvey victims will be provided in the same manner to Irma victims.

At the state level, Florida’s statutes provide that the executive director of the Department of Revenue may extend the stipulated due date for tax returns and accompanying tax payments. In addition, the director may waive the interest that accrues during the period of the state of emergency on taxes due prior to and during the period of the disaster. It is likely that the magnitude of the disaster will be taken into account in assessing these applicable extensions and other state tax relief in Florida.

Sarah Neumann
sneumann@rroyselaw.com
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