Natural disasters can take a physical, emotional, and financial toll on individuals and businesses in an affected area. In light of this, the Internal Revenue Service (IRS) provides tax relief benefits to alleviate some of the financial burdens and help the recovery process. Tax relief helps taxpayers fulfill their obligations and relieve their tax burdens in the event of a federally declared natural disaster.
Types of disaster tax relief
The President is at liberty to declare any naturally occurring event a major disaster. This includes earthquakes, hurricanes, snowstorms, landslides, droughts, tidal waves, storms or tsunamis, or volcanic eruptions. It also includes flood, fire, or explosion that causes so much damage that it exceeds the combined abilities of the state and local government to handle.
However, the Robert T. Stafford Act recognizes two types of disaster declaration for which the president provides supplemental federal disaster assistance.
- Emergency declarations that provide emergency services—like protection of lives and properties, and public health and safety—or work to lessen, or avert a catastrophic threat in any part of the US.
- Major disaster declarations are divided into individual and public assistance declarations.
- Individual assistance declarations provide help for individuals and households.
- Public assistance declarations assist state and local governments in the repair or replacement of facilities destroyed by the disaster. This declaration also covers certain private nonprofit organizations.
How to qualify for a tax relief
Firstly, tax reliefs are only applicable in federally declared disaster areas. In addition, tax relief is only paid to affected taxpayers in disaster states.
You qualify as an affected taxpayer for disaster tax relief if you fall under any of these categories.
- Your primary residence is located in a disaster area.
- Your business is located in a covered disaster area.
- You’re not located in a disaster area, but the necessary records to meet any specific deadlines are located in a disaster area.
- Any taxpayer who was killed or injured as a result of the disaster while visiting a disaster area. Or any individual that the IRS says is affected by the federally declared disaster.
- You’re a relief worker with affiliations with the government, or philanthropic organizations assisting in a specific disaster area.
How to claim benefits if affected by a natural disaster
Before claiming tax relief for a natural disaster, you will need to have the necessary documents to support your claim. This includes insurance claims, repair receipts, photographs of damaged property, and proof of residence in the disaster area—a utility bill will do.
You can claim tax relief benefits by filing a Form 1040 normally, or by filing an amended return using a Form 1040-X. Whether you fill a Form 1040 or 1040-X, you need to include Form 4684 to report your losses. However, you must include the name of the disaster and the Federal Emergency Management Agency (FEMA) declaration number in bold at the top of your form.
You can contact the IRS disaster hotline at 1-866-562-5227.
