Section 139 — Disaster Relief Payment Tax Exclusion
When a federally declared disaster strikes — a hurricane, earthquake, wildfire, flood, or pandemic — individuals often receive payments to help them cover emergency expenses. 26 U.S.C. § 139 excludes these "qualified disaster relief payments" from the recipient's gross income, preventing the tax system from clawing back disaster assistance at tax time. Enacted after September 11, 2001, when Congress wanted to ensure that relief payments to victims and their families would not be taxable, § 139 covers a broad range of payments: FEMA individual assistance grants, employer emergency assistance, charitable organization payments, and even informal payments from any person or organization made to help a disaster-affected individual cover reasonable and necessary personal, family, living, or funeral expenses. The exclusion also covers insurance proceeds for non-business casualty losses and payments for temporary housing. No dollar limit applies — any amount of qualifying disaster relief payment is excluded. The section is automatically triggered when the President declares a major disaster under the Stafford Act, or when a state of emergency is declared. For the FEMA programs that generate many of the qualifying disaster relief payments, see the FEMA Emergency Management page.
Current Law (2026)
| Parameter | Value |
|---|---|
| Governing provision | 26 U.S.C. § 139 |
| What is excluded | Qualified disaster relief payments received by individuals |
| What is a "qualified disaster" | A disaster resulting from a terroristic or military action; a Presidentially declared disaster (Stafford Act); a disaster determined by the Secretary of Treasury to warrant assistance; or an accident involving a common carrier |
| Covered payments | Amounts to pay or reimburse for: reasonable and necessary personal, family, living, or funeral expenses; reasonable and necessary home repair or replacement of household contents not covered by insurance |
| Dollar limit | None — any qualifying amount is excluded |
| Tax treatment of payer | Employer payments under § 139 are also deductible as business expenses; payments are excludable for FICA purposes as well |
| What is NOT covered | Payments for income replacement (lost wages, business income) — these are taxable; payments that are reimbursed by insurance; payments for non-qualified disasters |
| Deduction coordination | Cannot deduct expenses that were paid with § 139 funds (no double benefit) |
Legal Authority
- 26 U.S.C. § 139(a) — Gross income does not include any amount received by an individual as a qualified disaster relief payment
- 26 U.S.C. § 139(b) — Defines "qualified disaster relief payment": any amount paid (1) to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster; (2) to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence, or repair or replacement of its contents, to the extent not compensated by insurance; (3) by a federal, state, or local government, or an agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare; or (4) amounts that are qualified disaster mitigation payments
- 26 U.S.C. § 139(c) — Defines "qualified disaster": any disaster resulting from a terroristic or military action; any Presidentially declared disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act; any disaster determined by the Secretary of Treasury to warrant assistance under the Government Employees Act; and any accident involving a common carrier (aircraft, train, bus crash)
- 26 U.S.C. § 139(d) — Coordination rule: to prevent double-dipping, § 139 excludes the payment from income but the individual cannot also take a casualty loss deduction or other deduction for expenses reimbursed by the § 139 payment
- 26 U.S.C. § 139(e) — Qualified disaster mitigation payments: amounts received under the Hazard Mitigation Grant Program or Flood Mitigation Assistance program for mitigation of future disasters (elevating a home, flood-proofing, etc.) are also excluded from income
How It Works
When the President issues a Stafford Act major disaster declaration, § 139 automatically applies to qualifying payments received by individuals in the declared disaster area — no application required. The exclusion is particularly powerful for employers: payments to affected employees for emergency assistance (cash, gift cards, temporary housing, childcare costs, medical expenses) are excluded from the employee's gross income, excluded from FICA taxes, and deductible by the employer as a business expense — without a formal written plan. The most important limitation is that § 139 does not exclude income replacement: payments that substitute for lost wages or business revenue are taxable; only the extra, unexpected costs of the disaster qualify. Federal, state, and local government payments made "to promote the general welfare" in a declared disaster area qualify under § 139(b)(3) even without itemized expense documentation — FEMA individual assistance grants typically fall into this category.
In years when personal casualty losses are deductible (currently limited to federally declared disasters under post-TCJA rules), § 139 interacts with the casualty loss deduction: you cannot deduct a loss to the extent it was reimbursed by a qualifying § 139 payment. The IRS confirmed in Notice 2020-46 that payments for COVID-19-related expenses qualified under § 139 — enabling tax-free employer payments for COVID testing, medical expenses, home office setup, and childcare disruption costs, because COVID-19 was designated a Stafford Act disaster. Recipients should maintain records of what was received and what qualifying expenses it covered to support their tax treatment in case of audit.
How It Affects You
<!-- pria:personalize type="eligibility" -->If you've been affected by a federally declared disaster: Any assistance payments you receive — from FEMA, your state emergency management agency, your employer, a charitable organization, or even an individual — for your personal or family living expenses, home repair, or funeral expenses are not taxable. You do not need to report these as income on your federal return. Keep records of what you received and what expenses it covered in case of audit. Do not deduct the same expenses — if FEMA paid to replace your storm-damaged furniture, you cannot also take a casualty loss for those items.
If you're an employer with employees in a disaster area: § 139 lets you provide meaningful, tax-efficient assistance. You can make cash payments, pay for temporary hotel stays, reimburse grocery costs, cover childcare expenses, or help with home repairs — all tax-free to your employees and deductible by you. You don't need a formal plan document. Simply make the payments and maintain records showing they were connected to a qualified disaster and covered qualifying expenses. Coordinate with your payroll provider to exclude qualifying payments from FICA withholding — they should be coded separately from regular compensation.
If you're a nonprofit or charitable organization distributing disaster relief: Payments from charitable organizations to individuals for disaster-related living expenses, medical costs, and home repairs are excluded under § 139 when tied to a qualified disaster. This is an important planning point for disaster relief funds — structuring distributions as § 139 qualifying payments maximizes the after-tax benefit to recipients.
If you're a tax professional preparing returns for disaster victims: Watch for FEMA grants, employer assistance, charitable payments, and insurance proceeds — assess each for § 139 qualification. Ensure casualty loss deductions (where available for presidentially declared disasters) are net of any § 139 payments. The IRS also typically provides additional relief for disaster victims (extended filing deadlines, penalty abatement) in declared disaster areas — check for current IRS disaster relief notices at the time of filing.
<!-- /pria:personalize -->State Variations
State income tax treatment of disaster relief payments varies. Most states with an income tax conform to the federal § 139 exclusion — if it's excluded federally, it's excluded for state purposes too. Some states have enacted their own disaster relief exclusions that may be broader or narrower than § 139. In states that do not conform, disaster relief payments excluded federally might still be taxable at the state level — though this is relatively rare for major disaster payments.
Pending Legislation
- Expanding § 139 beyond Presidential declarations: Proposals to extend § 139 exclusion to disasters that don't reach the threshold for a Presidential declaration (which requires Governor request, federal assessment, and Presidential approval) have been introduced. Currently, employer disaster assistance for local disasters not covered by a Presidential declaration must be analyzed under other provisions.
- Community disaster loan forgiveness: When communities receive federal disaster loans that are later forgiven, the tax treatment of the forgiven debt has been addressed through specific legislative provisions; § 139 itself does not cover government-to-government payments.
Recent Developments
- COVID-19 expanded employer use of § 139 dramatically (2020–2022): The IRS's Notice 2020-46 confirming COVID-19 as a § 139 qualified disaster opened a major planning opportunity. Employers provided tax-free payments to employees for COVID testing costs, medical expenses, home office setup, childcare disruption, and grocery delivery — all qualifying personal and family expenses under § 139. Many employers that had never heard of § 139 built formal disaster relief programs during the pandemic. The COVID window closed as pandemic declarations ended, but it trained HR and benefits professionals to include § 139 in their disaster-response toolkit.
- 2025 Los Angeles wildfires triggered the largest § 139 event for California employers: The January 2025 Palisades and Eaton fires — destroying more than 16,000 structures in Los Angeles County — prompted employers with affected workers to deploy § 139 programs at scale. Employers provided tax-free cash assistance, temporary housing payments, and personal property replacement assistance to employees who lost homes or faced displacement. Unlike FEMA assistance (which covers some expenses but may take months to arrive), employer § 139 payments can be made immediately and are excluded from FICA as well as income tax.
- Hurricane Helene and Milton (2024) extended § 139 to Southeast employers: Hurricanes Helene (September 2024, affecting FL, GA, NC, VA, and SC) and Milton (October 2024, FL) triggered Presidential disaster declarations covering large populations. Employers in affected areas used § 139 to supplement FEMA assistance for employees dealing with flooding, property damage, and displacement. The IRS extended filing deadlines for affected taxpayers and issued guidance confirming the hurricane declarations qualified for § 139 purposes.
- Treasury exploring § 139 guidance for climate-related buyout programs: As federal, state, and local governments increasingly fund voluntary buyouts of properties in high-flood-risk or high-fire-risk areas (paying homeowners to permanently relocate), questions have arisen about whether these government payments qualify as § 139(e) qualified disaster mitigation payments. Treasury has signaled it is considering guidance on this question — a significant potential expansion of § 139 that would exclude from income the payments homeowners receive for selling flood-zone properties under FEMA's Hazard Mitigation Grant Program buyout component.