Kokua Line: Is cash aid for fire survivors taxable income? [The Honolulu Star-Advertiser]

Honolulu Star-Advertiser (HI)

Sep. 10—Question : Is all this financial help the fire survivors are getting going to end up counting as taxable income ?

Question : Is all this financial help the fire survivors are getting going to end up counting as taxable income ?

Answer : It depends on the type and /or use of the financial aid, according to the U.S. Internal Revenue Service and Hawaii Department of Taxation.

Unemployment Insurance and Disaster Unemployment Assistance are subject to federal and state income taxes. Claimants may choose to have federal taxes withheld from their weekly UI or DUA benefits, which eligible claimants may receive for up to 26 weeks. UI and DUA cannot be received concurrently. DUA is for wildfire survivors who don't qualify for regular UI, including the self-employed. A Sept. 25 application deadline looms for DUA, whose claimants must have lost work directly because of the disaster. The maximum weekly benefit amount for UI or DUA is $763.

Two other common types of monetary aid for Maui wildfire survivors—qualified disaster relief payments and outright gifts—are not subject to income taxes, if they meet IRS standards.

Section 139 of the Internal Revenue Code, which Hawaii also follows, says that qualified disaster relief payments, such as grants from the Federal Emergency Management Agency, don't count as income if the money is used to pay a disaster expense not reimbursed by insurance or some other source.

Qualifying expenses must be "reasonable and necessary " and result from the declared disaster. They can include personal, family, living or funeral expenses ; the cost to repair or rebuild a home and to repair or replace its contents ; transportation needs and other expenses. Various nonprofit organizations fundraising for Maui fire survivors, including the People's Fund of Maui, have described their direct aid to individuals as qualified disaster relief payments. More than 8, 000 people have applied to the People's Fund, which expects to disburse funds within 10 to 14 business days, a spokesperson said by email Friday.

Some Maui fire survivors also have raised significant amounts of money directly, through GoFundMe, Venmo or other crowdfunding platforms. As long as these donations to individuals or families come with no strings attached, they would be considered gifts and not included in gross income regardless of how the money is spent, according to the IRS, which notes that the rules are different for employers fundraising on behalf of employees.

"If crowdfunding contributions are made as a result of the contributors' detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized, " the IRS website says. "Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee's gross income."

However, even money not considered a gift—as in the IRS' employers example—may be a nontaxable qualified disaster relief payment, as long as it is spent on an otherwise unreimbursed disaster expense. Losses on Maui have been so great—with thousands of people losing their homes, jobs and all or most of their possessions—that even a combination of insurance coverage, government aid and charitable relief won't cover the total losses and disaster-related expenses for many victims. Wildfire survivors are advised to keep careful records and consult an expert if necessary when they file their taxes.

Mahalo I want to mahalo everyone who has helped on Maui and is still helping. The people from the community and the people who have come from outside the community. They are all helping. This situation is so painful that one thing we have going for us now is our shared humanity.—A reader------Write to Kokua Line at Honolulu Star-Advertiser, 500 Ala Moana Blvd., Suite 7-500, Honolulu, HI 96813 ; call 808-529-4773 ; or email kokualine @staradvertiser.com.------

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