Tax Relief for Hurricane Sandy Victims

The IRS Offers Some Deadline and Other Relief for Hurricane Sandy Victims

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The IRS is providing help to the victims of Hurricane Sandy. Special tax relief and assistance is available to taxpayers in Presidential Disaster Areas located in Connecticut, New Jersey, New York, and Rhode Island. This relief includes the following.

Extra Time for Tax Filings

The IRS has postponed various tax filing and payment deadlines for Hurricane Sandy victims. Affected taxpayers have until February 1, 2013 to file most tax returns or to make tax payments, including estimated tax payments, that have either an original or extended due date during the period of October 27, 2012 through February 1, 2013. However, 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. Likewise, the postponement does not apply to employment and excise tax deposits.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area need to call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Retirement Plan Loans to Sandy Victims

401(k) retirement plans and similar employer-sponsored retirement plans can make loans and hardship distributions to Hurricane Sandy victims and their families. This 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. To qualify for this relief, hardship withdrawals must be made by February 1, 2013.

IRA participants are barred from taking out loans, but they may be eligible to receive distributions under liberalized procedures.

Leave Donation Programs

Another special IRS program permits employees to donate their vacation, sick, or personal leave in exchange for employer cash payments made to charities providing relief for the Hurricane Sandy victims. Employees can forgo leave in exchange for employer cash payments made before January 1, 2014. Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the amount of the cash payment.

Additional Tax Relief Pending In Congress

A new law called the Hurricane Sandy Tax Relief Act of 2012 has been introduced into Congress. Modeled after a similar bill passed into law after Hurricane Katrina, it provides substantial additional tax relief for victims of Hurricane Sandy. Among other things, it would:

  • permit businesses and individuals in the Hurricane Sandy Disaster Area to deduct in a single year the costs of Hurricane Sandy-related hazardous substance abatement, debris removal, and repairs of business-related property
  • allow a five-year carryback of net operating losses caused by Hurricane Sandy
  • provide businesses in the Hurricane Sandy Disaster Area with a tax credit for hiring workers who lost their jobs due to the hurricane
  • eliminate the requirement that net casualty losses exceed 10% of AGI before they are deductible for taxpayers who suffer hurricane-related casualty losses
  • increase the charitable deduction limits for cash contributions to charities involved in hurricane relief efforts
  • allow families that reside or are substantially employed in the Hurricane Sandy Disaster Area to elect to use their previous year's income to calculate the child tax credit and the earned income tax credit; and
  • allow taxpayers whose principal place of residence is in the Hurricane Sandy Disaster Area to take distributions of up to $100,000 for hurricane-related losses from IRA or 401(k) accounts with no tax penalty, provided such distributions are repaid within three years.

January 2013

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