The U.S. Senate unanimously passed the bipartisan Federal Disaster Tax Relief Act on Wednesday, paving the way for survivors of the Maui wildfires to be exempted from paying federal income tax on settlement money or attorney fees included in a settlement. 

What You Need To Know

  • The exemption will also retroactively apply to qualified victims of federally declared disasters
  • The Federal Disaster Tax Relief Act would exclude from taxpayer gross income, for income tax purposes, any amount received by an individual taxpayer as compensation for expenses or losses incurred due to a qualified fire disaster
  • The bill will now go to Pres. Joe Biden for final approval
  • Earlier this year, Thompson and Rep. Greg Steube, R-Fla., led a bipartisan group to successful advance a discharge petition, forcing House Speaker Mike Johnson to bring the bill to the House floor for vote, where it passed on a 382-7 vote

 

The exemption will also retroactively apply to qualified victims of the fires. 

“Any settlement money survivors receive belongs to them, not the federal government,” said U.S. Sen. Brian Schatz, D-Hawaii, one of the bill’s co-sponsors. “We will continue to do everything we can to help survivors and the Maui community to recover and rebuild.”

The Federal Disaster Tax Relief Act would exclude from taxpayer gross income, for income tax purposes, any amount received by an individual taxpayer as compensation for expenses or losses incurred due to a qualified fire disaster.

 The bill will now go to Pres. Joe Biden for final approval.

The bill was originally introduced in the House in October 2023 by Reps. Mike Thompson, D-Calif., and Doug LaMalfa, R-Calif., to provide tax relief for PG&E fire victims.

Earlier this year, Thompson and Rep. Greg Steube, R-Fla., led a bipartisan group to successful advance a discharge petition, forcing House Speaker Mike Johnson to bring the bill to the House floor for vote, where it passed on a 382-7 vote.

The measure extends to relief payments for losses resulting from the Maui wildfires, the East Palestine (Ohio) train derailment, Hurricane Ian and other federally declared disasters.

Thompson thanked Sen. Alex Padilla, D-Calif., for shepherding the bill through the Senate.

“Fire survivors have been through enough in the wake of losing their homes and livelihoods to wildfires—it’s wrong to tax them on the settlement money meant to help them rebuild their lives,” Thompson said. “The Senate’s unanimous vote to pass tax relief for fire survivors is an important step towards recovery for victims in my district and across California.”

Michael Tsai covers local and state politics for Spectrum News Hawaii. He can be reached at michael.tsai@charter.com.