Bill would exempt wildfire settlements from federal taxes
Rep. Mike Thomson, who represents parts of Solano County, is spearheading the legislative effort.
Damage from the LNU Lightning Complex wildfire in rural Vacaville. (File photo)
Congressman Mike Thompson is leading a bipartisan legislative effort that would exempt wildfire-related settlements and related fees paid to attorneys from being taxed at the federal level.
This week, Thompson and fellow Congressman Greg Steube led a group of nearly 220 federal lawmakers in the U.S. House of Representatives to advance the Federal Disaster Tax Relief Act, which would allow wildfire victims to avoid paying federal taxes on legal settlements. It would also allow victims to exempt attorneys fees if they are included in those settlements.
Thompson represents California’s Fourth Congressional District, which includes Vacaville, Dixon and rural parts of northwest Solano County. He also represents parts of Yolo County, including Winters.
“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 emailed to Solano NewsNet on Thursday. “Today’s historic discharge petition reaffirms the House’s strong, bipartisan support for survivors and sends a clear message to Republicans who have stopped this bill in the Senate: It’s time to work with us to pass much-needed relief for disaster victims.”
Legal settlements are generally considered taxable at both the state and federal levels, unless lawmakers explicitly create an exemption. The measure being promoted by Thompson and others would do just that, allowing wildfire victims to exclude settlements from their gross income for tax purposes.
If passed, the measure would apply retroactively to settlements reached for any wildfire that occurred in the United States after 2014. Relief would also be extended to victims of a train derailment that occurred in Ohio last year.
Victims of some other natural disasters, including Hurricane Ian, may also qualify for relief if those incidents are recognized as federally-declared disaster events.
This week, lawmakers affirmed a “discharge petition” that paves a pathway for the federal tax assistant measure to be voted upon by the House. It is only the third time in two decades that lawmakers have advanced a discharge petition, an official with Thompson’s office said.
The discharge motion enters a “waiting period” of seven days, after which anyone who backs the initiative may call for a vote. If that happens, the measure must be scheduled for a vote within two legislative sessions. The soonest a vote could happen is early June, as House lawmakers return to their home districts at the end of May.