CA wildfire victims must still pay federal tax on PG&E settlement payments for now

Melanie Woodrow Image
Friday, October 14, 2022
CA fire victims must pay federal tax on settlement payments for now
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Legislation could make PG&E settlement money for CA wildfire victims tax-free from the federal government, but the bill is stuck in Congress.

SAN FRANCISCO (KGO) -- Fire victims struggling to rebuild after California wildfires say they need every dollar coming their way from a PG&E settlement. Bipartisan legislation could make that money tax-free from the federal government -- but the bill is stuck in Congress.

Michael Internicola and his family lost everything in the 2017 Tubbs Fire. "Down to about two feet of rubble," said Internicola.

In that rubble Internicola says he found the only item that survived, a ring his father gave him.

The family knew they wanted to rebuild. "We remain right on the exact same spot with the identical house we replaced," said Internicola.

Many more fire victims are struggling to do the same. "We don't have enough to rebuild and we're just essentially stuck," Camp Fire Survivor David Breed recently told ABC7 News.

According to claims data as of September 30th from the Fire Victim Trust, nearly half of the close to 70-thousand claimants are still waiting to receive a 45% partial payment from the trust.

VIDEO: PG&E stock sale may mean more cash for California wildfire victims

With PG&E back to the S&P 500, Fire Victim Trust says sale of its shares would help continue to resolve claims and get money to the CA fire victims.

On September 29th, Governor Gavin Newsom signed a bill which will make PG&E wildfire victims' settlement payments state tax-free, but as of right now fire victims must still pay federal taxes on the award money.

"It shouldn't be a taxable event upon them because they're victims of fire," said California Congressman Doug LaMalfa.

Congressman LaMalfa along with Congressman Mike Thompson introduced legislation that would exempt fire victims receiving compensation from the Fire Victim Trust from having to pay federal income tax on their settlements. "You know if the state can get it done, why can't the federal government," said LaMalfa.

But the bill is stuck. "What's the biggest hold up here," asked ABC7 News I-Team Reporter Melanie Woodrow.

"I think scheduling for committee time, floor time," said LaMalfa.

"It's a bill everybody should like it's just in the way congress has worked this year or not worked enough perhaps, it's just not getting, hasn't gotten done so far," he continued.

RELATED: Fire Victim Trust answers questions about $51 million spent as CA wildfire victims await payments

Congressman LaMalfa says the IRS took 5 months to get back to lawmakers about how fire victims who received PG&E settlement money should file their taxes so they wouldn't overpay or underpay and be facing penalties or fines.

"It was really disappointing that many members of Congress signed a letter asking for clarification and they took five months fooling around getting back to us," said LaMalfa.

"Did they provide any explanation as to why it took them 5 months to get back to you," asked Woodrow?

"No, no," said LaMalfa.

California Senator Dianne Feinstein introduced companion legislation in the Senate. Her office says it's currently in the Finance Committee.

VIDEO: Will new regulations do enough to keep homeowners from losing fire insurance?

Not everyone convinced new rules will prevent homeowners from losing fire insurance.

The legislation would exempt wildfire payouts from income taxes and would allow attorney fees and court costs to be deducted from taxes, right now they are not.

"That's the one that probably disturbs me the most," said Internicola.

The House and Senate will be in session in mid-November. Congressman LaMalfa says that gives them through the end of the year to get the legislation passed.

"All legislation that is not passed and signed does lapse as of January 2nd so we would put that bill right out on January 3rd as soon as the swearing in is over with and get going again because our constituents have waited long enough," said LaMalfa.

In the meantime, between attorney's fees and taxes, fire victims are watching what settlement payments they do receive get smaller, along with their dreams of rebuilding anytime soon.

Take a look at more stories by the ABC7 News I-Team.

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