S-3372-119
Read twice and referred to the Committee on Finance. (Sponsor introductory remarks on measure: CR S8514)
Sponsored by Alex Padilla (D-CA)
What it does
This bill would amend the Internal Revenue Code to exclude "qualified wildfire relief payments" from an individual's gross income for federal tax purposes. Qualifying payments would include compensation for additional living expenses, lost wages (excluding wages paid by an employer who would have paid them anyway), personal injury, death, and emotional distress resulting from a federally declared wildfire disaster declared after December 31, 2014. The exclusion would apply only to losses not already covered by insurance or other compensation, and a "double benefit" provision would prevent recipients from also claiming deductions or credits for the same expenses. The bill would take effect for amounts received after December 31, 2025.
Who benefits
Individuals who have received or will receive financial compensation — from government programs, legal settlements, or other non-insurance sources — for losses caused by federally declared wildfires. This includes survivors of major California wildfires (e.g., Camp Fire 2018, Los Angeles fires 2025) and other Western states. Attorneys and settlement administrators handling wildfire litigation, who may see increased settlement activity. State and local governments and nonprofits that distribute wildfire relief funds, as recipients would face no federal tax liability on those payments. Utility companies facing wildfire liability may also benefit indirectly, as tax-free treatment could make settlement offers more attractive to claimants.
Who is hurt
The federal government would forgo tax revenue on wildfire relief payments, shifting the fiscal burden to the broader taxpayer base. Victims of other types of federally declared disasters (floods, hurricanes, tornadoes) who do not have a comparable income exclusion may perceive unequal treatment. States with income taxes that conform to the federal tax code would also lose revenue unless they decouple from this provision. Taxpayers in non-wildfire-prone regions may bear a proportionally larger share of the federal tax base.
Supporters argue
Supporters argue that taxing disaster relief payments effectively claws back compensation from people who have already suffered catastrophic losses — forcing wildfire victims to pay taxes on money meant to replace their homes, wages, and wellbeing. They contend that the IRS has historically treated some disaster payments inconsistently, creating uncertainty for victims, and that this bill provides clear, permanent relief. With major wildfire events — including the 2018 Camp Fire and 2025 Los Angeles fires — generating billions in settlements and relief payments, supporters argue the tax exclusion ensures victims are made whole rather than penalized for receiving compensation.
Opponents argue
Opponents argue that singling out wildfire victims for a tax exclusion creates an inequitable two-tiered system in which victims of other federally declared disasters — hurricanes, floods, or tornadoes — remain subject to federal income tax on comparable relief payments. They contend that a more principled approach would be a universal disaster relief income exclusion rather than a geographically concentrated carve-out that disproportionately benefits a handful of states. Critics may also note that the bill's retroactive reach to disasters declared after December 31, 2014 could raise due process concerns under the Fifth Amendment regarding the timing and reliance interests of prior tax filings.