§139 Disaster Relief Payments

Summary

Payments given to help people after a disaster do not count as taxable income if they meet certain rules. Qualified disaster relief payments are money paid to help with reasonable and needed personal, family, living, or funeral costs from a disaster; to fix or rebuild a damaged home or replace its contents because of a disaster; payments by a common carrier for death or injury from a disaster; or payments by a federal, state, or local government to help the public. These amounts are tax-free only to the extent the expenses are not already paid by insurance or another source. A qualified disaster can be a terror or military action (see section 692(c)(2)), a federally declared disaster (see section 165(i)(5)(A)), a common-carrier accident or other event the Secretary calls catastrophic, or a disaster a government says needs assistance. Disaster relief and qualified disaster mitigation payments are not treated as wages or self-employment earnings for employment-tax rules (chapter 2 and subtitle C). The tax break does not apply to people the Attorney General identifies as participants or conspirators in a terroristic action. Payments under section 406 of the Air Transportation Safety and System Stabilization Act are also excluded. Qualified disaster mitigation payments are hazard-mitigation funds under the Stafford Act or the National Flood Insurance Act paid to a property owner; they are not taxable, do not raise the property’s tax basis, and you cannot take a deduction or credit for expenses that were covered by these tax-free payments.