IRS Provides Tax Relief to Hurricane Sandy Victims [Update 2]
Tax relief is available to those whose lives and businesses were disrupted when Hurricane Sandy slammed into the East Coast. The IRS has postponed until February 1, 2013 various tax filing and payment deadlines beginning with those due in late October, 2012. For certain counties in New York and New Jersey, deadlines are extended until April 1, 2013. The IRS also designated Hurricane Sandy as a qualified disaster for federal tax purposes, waived penalties on dyed diesel fuel and acted to provide other tax-related relief.
Who Can Claim This Relief?
If you reside or operate your business in one of the federally declared disaster areas, you are automatically granted these extensions and related tax relief. You do not need to take any action in order to obtain them.
However, an individual, business, estate or trust not located within a covered disaster area may still be eligible for this relief if tax records necessary to meet any of the extended tax deadlines were in the affected area. Taxpayers in this predicament are not granted automatic relief, but must apply for it. In addition, a relief worker who is affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area may be eligible for tax relief.
If you reside or operate your business outside the disaster area or are a disaster aid worker and you believe you qualify for relief as a result of Hurricane Sandy, you should immediately contact the IRS at (866) 562-5527.
There are separate disaster designations for areas affected in Connecticut, Maryland, New Jersey, New York and Rhode Island. (The President makes disaster designations based on damage assessments by the Federal Emergency Management Authority (FEMA).)
- Connecticut (starting October 27, 2012). Fairfield, Middlesex, New Haven, and New London Counties; and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located
within New London County
- Maryland (starting October 26, 2012). Somerset County
- New Jersey (starting October 26, 2012). Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex,
Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris,
Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren
- New York (starting October 27, 2012). Bronx, Kings, Orange, Nassau, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and Westchester Counties
- Rhode Island (starting October 26, 2012). Newport and Washington counties
The IRS often updates its information on disaster relief efforts regarding Hurricane Sandy. The IRS web page, Help for Victims of Hurricane Sandy, provides comprehensive and current information regarding tax relief.
What Deadlines Are Extended?
The deadline relief granted is sweeping-far broader than extensions normally granted in disaster situations. Specific tax deadlines that fall on or after the disaster designation date and before February 1, 2013 are extended to February 1, 2013. For the following localities only, the February 1 deadline is extended to April 1, 2013:
- New Jersey (starting Oct. 26). Monmouth and Ocean counties
- New York (starting Oct. 27). Nassau, Queens, Richmond and Suffolk counties
These deadlines include:
- Estimated tax payments, Individuals. Fourth-quarter individual estimated tax payments, normally due Jan. 15, 2013
- Estimated tax payments, Corporations. Fourth-quarter corporate estimated tax payments, normally due December 15, 2012
- Payroll Tax Returns. Third-quarter returns and payments that accompany the returns (normally due October 31, 2012) and fourth quarter returns and payments (normally due January 31, 2013)
- Income Tax Returns. All income and information returns (including individual, corporate, estate and trust income tax returns; partnership and S corporation returns) with original or extended due dates falling on or after the disaster designation date
- Estate, gift and generation-skipping transfer tax returns. All returns with original or extended due dates falling on or after the disaster designation date
- Tax Exempt Organizations Form 990 series. Any Form 990 series forms with a due date (whether original or extended) after the disaster declaration
Calendar year corporate income tax returns due March 15 are included in the extension from February 1, 2013 to April 1, 2013, for Monmouth and Ocean counties in New Jersey and for Nassau, Queens, Richmond and Suffolk counties in New York.
Payroll tax deposits. Payroll tax deposits (other than those paid with an employment tax return) are not given as generous an extension. However, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after the disaster designation and on or before November 26, 2012, provided all required deposits are made by November 26, 2012.
The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to excise tax deposits.
Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims
In an addition to this grant of relief, the Internal Revenue Service announced on November 16, 2012, that it is allowing 401(k)s and similar employer-sponsored retirement plans to make loans and hardship distributions to employees and certain members of their families who live or work in the Hurricane Sandy disaster areas. (Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.)
To qualify for this relief, hardship withdrawals must be made by February 1, 2013.
The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
Diesel Fuel Penalty Waiver Extended
The IRS will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highways during the period from October 30, 2012 through December 7, 2012 for all of New Jersey, the five boroughs of New York City and Nassau, Suffolk, Rockland, and Westchester counties in New York state. In addition, relief from these penalties is available for Pennsylvania from October 30 to November 20, 2012. (At this point, the relief does not include Connecticut.) In addition, the IRS will not impose the tax penalty on a failure to meet the requirements of highway diesel fuel sulfur content regulations if the U.S. Environmental Protection Agency (EPA) has waived the requirements.
Federal Disaster Designation Allows Rapid Casualty Loss Refund
Taxpayers in a federally declared disaster area are entitled to relief from the standard tax rule that says that a casualty loss can only be deducted in the year in which it occurs. Taxpayers in a disaster area may treat the loss as having occurred in the year immediately prior to the tax year in which the disaster happened. The taxpayer can deduct the loss on his or her return or amended return for that preceding tax year. This option allows taxpayers to get an immediate refund, instead of having to wait until they file their return for the year of the loss.
If a taxpayer is claiming a personal casualty loss, the loss is subject to a $100 floor per casualty and to an overall 10 percent of adjusted gross income limitation. The total loss must be reduced by any insurance payment received for the property. The $100 floor and 10 percent of AGI limitations do not apply to a business or income-producing property casualty loss.
For more comprehensive information see our article, "Disasters and Taxes: What You Need to Know After the Crisis Passes."
Qualified Disaster Payments Are Not Taxable Income
Because Hurricane Sandy is designated as a qualified disaster for federal tax purposes, qualified disaster relief payments made to individuals by their employer or any person can be excluded from the recipient's taxable income. Additionally, employer-sponsored private foundations may provide disaster relief to employee-victims in areas impacted by Hurricane Sandy without affecting their exempt status, the IRS explained.