California’s Federal Disaster Tax Relief Act is now one step closer to becoming a law. If approved, the Disaster Tax Relief Bill would exempt wildfire relief payments and other related expenses from federal income taxes. The bill now heads to the Senate.

Disaster Tax Relief Bill: what does it include?

On Tuesday, the House approved the Federal Disaster Tax Relief Act (H.R. 5863) with a vote of 382-7.  The bill includes U.S. Rep. Mike Thompson’s laws about tax exemption for fire victims.

“Today’s bipartisan vote to offer tax relief to fireplace survivors is a crucial step towards recovery for individuals who lost homes, businesses, and family members and sends a transparent message to Senate Republicans: It’s time to work with us to pass much-needed relief for disaster victims,” Rep. Thompson said in a press release.

Also, the laws includes Protect Innocent Victims Of Taxation After Fire Act (H.R. 4970) from Congressman Doug LaMalfa.

“Fire victims have been patient and waited greater than long enough. The award money mustn’t be an IRS taxable event,” Congressman LaMalfa said.

If approved, the Disaster Tax Relief Bill would exempt victims of PG&E wildfires and other qualified wildfire victims from owing federal income tax on their settlement money or attorney fees.

Specifically, the bill excludes from a taxpayer’s gross income any amount that an individual receives as compensation for expenses or losses incurred as a result of a professional wildfire disaster, for tax purposes. A professional wildfire disaster is that if it has occurred after Dec. 31, 2014, and was declared a federal disaster.

Also, the bill excludes relief payments for losses occurring from the East Palestine, Ohio, train derailment on Feb. 3, 2023. The laws declares Hurricane Ian and other federally declared disasters as qualified disasters.

How has the bill progressed?

Rep. Thompson, who can also be the Rating Member of the Subcommittee on Tax for the Ways and Means Committee, originally introduced the laws to supply tax relief to PG&E fire victims in October 2023.

Since then, Rep. Thompson has worked to advance the laws. Last week, Rep. Thompson led a 218-member bipartisan group to successfully advance a petition that forced House Speaker Mike Johnson to bring the Disaster Tax Relief Bill to the House floor for a vote. 

It was only the third time that a House discharge petition succeeded within the twenty first Century. If a bill is “discharged” or pulled from committee, it should be brought onto the House floor for a vote.

Most recently Congress witnessed 18 unsuccessful discharge petitions on a variety of issues, including COVID-19, abortion, stock trading by members and more.

Now that the House has approved the Disaster Tax Relief Bill, it must be approved by the Senate with a majority vote. After the Senate’s approval, the bill would land on President Joe Biden’s desk for final approval.