Congress OKs Long-Awaited Tax Relief for California Wildfire Victims

Update, 8 a.m. Dec. 13:  President Biden signed the Federal Disaster Tax Relief Act on Thursday, Dec. 12.

Original story, 7:30 a.m. Dec. 7: Congress has taken final action on a tax bill that will help tens of thousands of Northern California residents who lost their homes over the past decade to wildfires caused by PG&E equipment.

Under the Federal Disaster Tax Relief Act of 2023 (PDF), payments made to compensate wildfire victims for their losses are exempted from federal income tax.

North Bay Democratic Rep. Mike Thompson and Sacramento Valley Republican Rep. Doug LaMalfa steered the bill through the House earlier this year. The Senate, which had delayed action because of wrangling over unrelated provisions in companion tax bills, approved the measure by a unanimous voice vote.

President Biden is expected to sign the bill in the next few days.

The bill’s authors said the legislation is a matter of simple fairness for people still trying to put their lives back together, in some cases nearly a decade after losing everything they owned.

“When a wildfire survivor is combing through the ashes of their former home, the last thing they should have to worry about is how they’re going to pay taxes on any settlement they receive,” California Sen. Alex Padilla, a Democrat who was part of a bipartisan group that carried the bill in the Senate, said in floor remarks after the vote.

“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 in a statement.

Starting in 2015, PG&E equipment sparked fires that burned down tens of thousands of homes, from the North Bay to the Sierra foothills to the Butte County town of Paradise.

The company’s role in starting the Camp Fire, which destroyed much of Paradise and surrounding communities and killed 84 people in November 2018, prompted the utility to declare Chapter 11 bankruptcy in January 2019.

As part of its court-approved plan to exit bankruptcy, PG&E agreed to fund a trust to compensate the more than 70,000 people who suffered fire-related losses. Those payments have been very slow to arrive, in large part because half of the fund consisted of PG&E stock that the trust sold off gradually.

Once payments arrived, fire survivors faced another problem: The money intended to help rebuild homes and get them back on their feet was subject to federal income tax.

Will Abrams, who lost his Santa Rosa home in one of the fires that swept the North Bay in October 2017, was among fire survivors who traveled to Washington, D.C., to urge passage of the tax relief bill.

He pointed out that the Fire Victim Trust set up by the PG&E bankruptcy settlement is likely to cover only 70% of survivors’ losses, and that the measure is crucial for both individual and community recovery.

“Victims are already being left short-changed because of the way that the bankruptcy went,” Abrams said. “And to have Uncle Sam take [settlement] money as if it’s earned income is a real injustice and would leave communities really financially devastated, with people not able to pay bills, not able to rebuild their homes. So this is a huge lift for us and a huge relief for 70,000-plus families.”