HR-7825-119
Referred to the House Committee on Ways and Means.
Sponsored by Vince Fong (R-CA)
What it does
This bill would add a new section (139M) to the Internal Revenue Code that excludes "qualified wildfire relief payments" from an individual's gross income for federal tax purposes. A qualifying payment must compensate for losses, expenses, or damages — including additional living expenses, lost wages, personal injury, death, or emotional distress — resulting from a federally declared wildfire disaster declared after December 31, 2014. The exclusion applies only to amounts not already covered by insurance or other compensation, prevents recipients from also claiming a deduction or tax credit for the same expenses, and is set to expire after December 31, 2032.
Who benefits
Individuals who received or will receive wildfire relief payments from government programs, legal settlements, utility company funds (such as those established after California utility-caused fires), or other sources for federally declared wildfire disasters. This includes homeowners, renters, and business owners who lost property; displaced residents receiving additional living expense payments; workers who lost wages; and survivors of personal injury or death claims. Attorneys and settlement administrators handling wildfire litigation may also benefit indirectly from increased settlement values. Wildfire-affected communities in California, Oregon, Washington, Colorado, and other western states are the primary geographic beneficiaries.
Who is hurt
The federal government would forgo tax revenue on these payments, which could indirectly affect funding for other programs or increase the deficit. Disaster victims from non-wildfire federally declared disasters — such as hurricanes, floods, or tornadoes — are not covered by this exclusion and may face unequal tax treatment for similar relief payments. Taxpayers broadly may bear indirect costs if the revenue loss is not offset. States that conform their tax codes to federal law may also see reduced state income tax revenue.
Supporters argue
Supporters argue that taxing disaster relief payments effectively penalizes victims twice — once by the disaster itself and again by reducing the net value of compensation meant to make them whole. They contend that wildfire relief payments, particularly from large utility-caused fire settlements in California, are compensatory in nature and should not be treated as income any more than insurance proceeds for property damage. They also argue the bill provides certainty for thousands of claimants currently navigating complex tax questions about the taxability of their settlement funds.
Opponents argue
Opponents argue that the bill creates an inequitable two-tiered system in which wildfire victims receive a federal tax benefit unavailable to victims of other federally declared disasters such as hurricanes or floods, raising fairness concerns. They contend that existing tax law already provides some relief for casualty losses and that a targeted wildfire carve-out sets a problematic precedent of disaster-specific tax policy that could fragment the tax code. They also note the bill's 2032 sunset does not address the long-term structural question of how all disaster relief payments should be taxed.