Democrats introduce wildfire disaster tax relief bill
A group of Senate Democrats introduced legislation Thursday to offer tax relief to individuals, businesses and states affected by catastrophic wildfires, such as the ones devastating California, Oregon and Washington State, along with other presidentially declared disasters, such as Hurricane Sally, which flooded parts of Gulf states like Florida, Alabama and Louisiana this week.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, along with Sen. Jeff Merkley, D-Oregon, Dianne Feinstein, D-California, Patty Murray, D-Washington, and Kamala Harris, D-California, introduced the bill in the Senate. Rep. Earl Blumenauer, D-Oregon, is introducing companion legislation in the House.
“The devastation in Oregon is unlike anything I’ve ever seen, with entire communities burned to the ground,” Wyden said in a statement. “Recovering from this unprecedented disaster will require a comprehensive federal response that includes tax relief. Our bill is one piece of that puzzle, and would help get cash into the hands of families and small businesses. Oregonians can’t wait for this critical relief, and I’m going to do all I can to get this done in September.”
California too has been seeing an unprecedented fire season this year, adding to the woes from the coronavirus pandemic.
“California is experiencing the largest wildfire season in the state’s history,” Feinstein said in a statement. “With more than 3.3 million acres burned this year and 4,200 homes and buildings destroyed since August, any aid we can offer victims will provide much-needed relief. This bill provides tax relief to wildfire victims and increases funding for low-income housing, which will be critical to help Californians and other victims of natural disasters recover.”
The 2020 Disasters Tax Relief Act would offer an exception to the 10-percent penalty for early withdrawals from retirement plans for qualified disaster distributions (up to $100,000), allowing the tax associated with disaster distributions to be paid ratably over three years and permits re-contributions of withdrawn retirement funds. The provision would provide flexibility for loans from retirement plans for qualified disaster relief.
Another provision involves an employee retention tax credit. The bill includes an income tax credit for 40 percent of wages (up to $6,000 per employee) paid by a disaster-affected employer to an employee from a qualified disaster zone. The credit would apply to wages paid without regard to whether services associated with those wages were performed.
The bill would also eliminate the requirements under current law that personal casualty losses must exceed 10 percent of adjusted gross income in order to qualify for a tax deduction with regard to uncompensated losses arising in the disaster area. The bill also would enable taxpayers to claim disaster casualty losses as part of their standard deduction.
With a special rule for earned income, the bill would allow taxpayers in designated disaster areas to refer to earned income from the immediately preceding year for purposes of figuring the Earned Income Tax Credit and Child Tax Credit in tax year 2020.
The bill would also lift the state credit ceiling for the Low Income Housing Tax Credit for 2021 to help fund additional projects within 2020 disaster areas. The increase would be equal to the credits allocated to projects in disaster areas, up to 50 percent of the state’s total 2020 credit allocation.
Separately, the IRS said Thursday that it will provide its own form of tax relief to victims of the Oregon wildfires, extending the due dates for individual and business tax returns and payments until Jan. 15, 2021 that would otherwise be due on Oct. 15, 2020. The relief is available to any area designated by the Federal Emergency Management Agency as qualifying for individual assistance. Currently that includes Clackamas, Douglas, Jackson, Klamath, Lane, Lincoln, Linn and Marion counties in Oregon, but taxpayers in localities added later by FEMA to the disaster area will automatically receive the same filing and payment relief. The tax relief delays various tax filing and payment deadlines starting Sept. 7, 2020.