Two U.S. congressmen from California introduced legislation last week that would exempt thousands of fire victims from having to pay federal income tax on settlement money related to recent wildfires in the region and state.

The bipartisan legislation, from Rep. Doug LaMalfa, R-Calif., and Rep. Mike Thompson, D-Calif., will help those who are receiving compensation from the Pacific Gas and Electric Company’s Fire Victim Trust.

The federal legislation is part of other efforts by state lawmakers to bring tax relief to wildfire victims.

On Jan. 31, legislation meant to bring tax relief to victims and related settlement payments passed the state Assembly. 

The bill, AB 1249, was introduced by Assemblyman James Gallagher, R-Yuba City. In the legislation, Gallagher and others associated with it are looking to allow wildfire victims to be exempt from paying state taxes based on settlement payments made out of the Fire Victim Trust.

According to LaMalfa, the Trust is a $13.5 billion settlement established in July 2020 for survivors of the 2015 Butte fire, the 2017 North Bay wildfires, and the 2018 Camp fire. 

LaMalfa said that although the deadline to file 2021 taxes is April 18, the federal legislation he helped introduce would allow survivors to be awarded their exemption retroactively. The legislation also will prevent wildfire victims from having to pay taxes on attorney fees included in the settlement.

LaMalfa said those fees accounted for about 30 percent of the compensation that victims receive.

“Fire victims have lost homes, belongings, and for some, even their loved ones. We should not ask survivors to pay federal taxes on compensation that they will use to rebuild their lives,” LaMalfa said in a statement. “And we certainly should not be asking them to pay taxes on funds that are going to their lawyers – this would be double taxing the settlement dollars. I have heard firsthand the concerns survivors have faced when navigating the ambiguous tax code. This bill has been a long time coming, and I look forward to continuing this effort with Rep. Thompson so survivors can finally get a financial reprieve.”

LaMalfa said In January, he and Thompson, along with other members of the California delegation, sent a bipartisan letter to Internal Revenue Service Commissioner Charles Rettig to expedite and release tax guidance to help victims understand the taxability of their claims from the Fire Victim Trust.

“I have heard from constituents across our community who are deeply, deeply concerned that they will face a tax burden upon receiving a payout from PG&E,” Thompson said in a statement. “This trust was set up to help people get back on their feet and recover after a destructive fire. They should not have to pay taxes on these payouts. I am proud to introduce this bill alongside Rep. LaMalfa to help our constituents receive the money they are owed, and will continue working to ensure survivors have the resources they need to recover from these tragedies.”

 

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