Tax deadlines are stressful enough in the best of times. When disaster strikes in your region, tax payment and filing deadlines can add additional stress to a situation that is already emotionally and financially draining.
According to the National Centers for Environmental Information, the United States alone has sustained 310 natural disasters since 1980, and overall damages have exceeded $1 billion (Consumer Price Index adjusted to 2021). At an average of more than seven events per year, it is likely that you or someone in your network has firsthand experience with the aftermath of a natural disaster.
Such disasters encompass many forms, including hurricanes, tornadoes, floods, earthquakes, wildfires, and winter storms. It is definitely possible—especially late in the tax filing season—for a natural disaster to inhibit your ability to access your supporting tax documents or file your tax return in a timely manner. Fortunately, the Internal Revenue Service (IRS) offers tax relief to taxpayers affected by natural disasters.
- Common forms of tax relief include tax-filing extensions, tax-payment extensions, and the casualty loss deduction.
- The casualty loss deduction may allow you to receive an accelerated tax refund.
- If your loss is in a federally declared disaster area as determined by the president of the United States, you can deduct it on your prior or current year tax return.
- A 1040-X, Amended U.S. Individual Income Tax Return can be filed to claim the deduction if you have already filed your previous year’s tax return.
What Must Happen for You to Qualify for Tax Relief?
Before the IRS can offer any tax relief to taxpayers affected by a natural disaster, the Federal Emergency Management Agency (FEMA) must issue a major disaster declaration as instructed by the president of the United States. When FEMA identifies an area for its Individual Assistance program, the IRS will authorize tax relief to the same area. The casualty loss deduction, which may allow you to receive an accelerated tax refund, is available only if you live in a federally declared disaster area.
In order to qualify as an “affected taxpayer” for tax filing and payment extensions, you do not have to be located in a federally declared disaster area. Affected taxpayers include individuals, business entities or sole proprietorships, and shareholders of an S corporation with tax records located in a FEMA-covered disaster area.
What Forms of Tax Relief Exist?
There are several different forms of tax relief that may be available to you after a natural disaster. The most common are extensions on the deadlines to file and pay your taxes. You may also qualify for the casualty loss tax deduction. Additionally, the Small Business Administration (SBA) may offer financial help in the form of disaster loans or grants.
Tax Filing and Payment Extensions
If your address on record with the IRS is in an area that qualifies for disaster tax relief, you will automatically receive extra time to file your tax return and pay any final tax payments.
Casualty Loss Deduction
If you are located in a federally declared disaster area, you may qualify for the casualty loss deduction. This deduction is available to taxpayers who have damaged or lost property as a result of the natural disaster. You can claim it on your current year or prior year tax return.
If you claim it on your prior year return, you will see a refund more immediately. If you have already filed that return, then you should file a Form 1040-X, Amended U.S. Individual Income Tax Return to amend it.
Disaster Loans and Grants
The SBA may offer financial help to business owners, private nonprofits, homeowners, and renters in a declared disaster area. To qualify, you must have filed all required tax returns. The SBA website offers a search feature to identify current declared disasters. Disasters can be declared by the president of the United States or the secretary of agriculture to qualify for assistance.
Natural Disasters That Qualify for Tax Relief
Natural disasters in 2021 that qualify for tax relief and the states impacted include:
- Hurricane Ida in Louisiana, Mississippi, New Jersey, New York, Connecticut, and Pennsylvania
- Tropical Storm Fred in North Carolina
- Severe storms and flooding in Tennessee
- Wildfires in California
- Severe storms, flooding, and tornadoes in Michigan
- Severe storms and flooding in Louisiana
- Severe storms and flooding in West Virginia
- Severe storms and tornadoes in Alabama
- Severe storms, flooding, landslides, and mudslides in Kentucky
- Severe winter storm in Louisiana
- Severe winter storm in Oklahoma
- Severe winter storm in Texas
Three disasters in 2022 have already qualified, as well.
- Severe storms, winds, and tornadoes in Tennessee
- Storms, winds, flooding, mudslides, and landslides in Washington State
- Colorado wildfires
The IRS website has a disaster assistance page where victims of recent natural disasters can find details about the types of tax help available to them. You can easily search all disaster-related tax relief offered in the last five years.
Other Relevant Tax Items Post-Natural Disaster
You may need to obtain a tax transcript to support your disaster claims. You can get one by using the Get Transcript Online tool on the IRS website, calling the IRS at (800) 908-9946, or filling out IRS Form 4506-T, Request for Transcript of Tax Return.
If you need to relocate as a result of the natural disaster, be sure to update your address with the IRS. One way to do that is to file Form 8822, Change of Address. Alternatively, you can send a written statement or update the IRS verbally over the telephone. Be aware that if you use the phone, you will need to have certain identifying information on hand:
- Full name
- New address
- Old address
- Date of birth
- Social Security number
Do I Qualify for Disaster Relief If My Tax Preparer Is in a Disaster Area, but I Am Not?
You may qualify for tax relief if you are outside a disaster area but your tax preparer is within it, so long as the area your tax preparer is in is a federally declared disaster area and they are unable to file or pay your taxes on your behalf.
To approve the postponement of your filing or payment, you must call the Disaster Hotline of the IRS at (866) 562-5227 and explain that your necessary tax records are in a covered disaster area. You will also be required to provide the FEMA disaster number of the area in which your tax preparer resides.
Do I Qualify for Disaster Relief If I Am a Shareholder in an S Corporation Located in a Disaster Area, but I Am Not in the Disaster Area?
If the S corporation (or partnership) cannot provide you with the tax records necessary to file your tax return, you qualify as an affected taxpayer. Your postponement period will coincide with the period of the affected S corporation (or partnership).
Again, you will have to call the IRS's Disaster Hotline at (866) 562-5227 to explain that your tax records are in a designated disaster area. You will also need to provide the IRS with the FEMA disaster number of the area in which the affected S corporation (or partnership) is located.
Can I Get Tax Relief on Interest on a Preexisting Outstanding Balance During the Disaster Relief Period?
No. There is no tax relief for interest due on balances from tax liabilities for prior years. However, the IRS may consider waiving the late payment penalty when the reason for late payment is reasonable and related to the disaster.