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Tax Relief for Hurricane Sandy Victims

TaxAlerts Tax Article

December 2012 | Written by: Karen Reed

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In the aftermath of Hurricane Sandy, the IRS has announced a range of relief measures intended to help those in disaster areas meet their tax obligations and recover from the damage caused by the storm. The Service is also making it easier for individuals to help friends and family affected by the storm. Here is a recap of the tax relief for Sandy victims announced by the IRS during November.

  • Taxpayers in qualified federal disaster areas may exclude disaster relief payments received from employers or others from taxable income. Qualified disaster relief payments include funds received to cover personal expenses not covered by insurance such as personal living expenses, funeral expenses, or the repair or rehabilitation of personal residences.
  • Individuals and businesses will have until Feb. 1, 2013, to file returns and tax payments that were due starting in late October. This includes the fourth quarter individual estimated tax payment and payroll and excise tax returns and accompanying payments for the third and fourth quarters. It also applies to tax-exempt organizations with an original or extended deadline for a Form 990 series return falling during this period.
  • In response to shortages of clear diesel fuel caused by Hurricane Sandy, the IRS will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highway provided the operator or the person selling the fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for on-road use. The relief is available in New Jersey, New York, and Pennsylvania beginning Oct. 30, 2012, through December 7, 2012. In addition, the IRS will not impose penalties for failure to make semimonthly deposits of this tax. The Internal Revenue Service also will not impose the tax penalty on a failure to meet the requirements of EPA highway diesel fuel sulfur content regulations if the EPA has waived those requirements.
  • In an effort to expand the availability of housing for disaster victims and their families, the Internal Revenue Service will waive low-income housing tax credit rules that prohibit owners of low-income housing from providing housing to victims of Hurricane Sandy who do not qualify as low-income. Income limitation requirements and non-transient requirements for qualified low-income housing projects that provide housing to victims of Hurricane Sandy will be temporarily suspended.
  • Special relief programs allow employees to donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. Employees can forgo leave in exchange for employer cash payments made before Jan. 1, 2014. Under this program, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the amount of the cash payment.
  • The IRS is relaxing procedural and administrative rules for loans and hardship distributions from 401 (k) and similar employer sponsored retirement plans. The relief can allow a Sandy victim to take a hardship distribution or borrow up to certain limits from their retirement plan. A person who lives outside the disaster area can take out a retirement plan loan or hardship distribution to assist certain relatives and dependents who lived or worked in the disaster area. Generally, hardship distributions are still subject to taxation, and a 10% penalty may apply for early distributions.

This article is intended to provide general information about IRS disaster tax relief. Before you take any action, you should seek personalized advice from a tax professional who knows the details of your particular situation.