Following the devastation of Hurricanes Harvey, Irma and Maria, which impacted broad swaths of Texas, Florida, and the Caribbean, respectively, Congress enacted legislation
extending targeted tax benefits to individual and business taxpayers impacted.
On Sept. 29, the president signed into law the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (P.L. 115-63), which creates a wage tax credit for employers who made or make wage payments to employees during a time when a trade or business in a disaster zone was inoperable. The legislation also provides for modifications to rules governing deductions for personal casualty losses, withdrawals from retirement accounts, charitable giving, the earned income tax credit (EITC) and the child tax credit (CTC).
The legislation extends relief to taxpayers located in disaster areas that have been determined to warrant individual or individual and public assistance from the federal government. Information regarding whether a particular area has been determined to receive such assistance may be obtained from the Federal Emergency Management Agency’s (FEMA) website. As of Oct. 16, 2017, these impacted areas were, according the FEMA and the IRS
Business tax incentives
Certain counties in Texas (Hurricane Harvey)
The state of Florida (Hurricane Irma)
The state of Georgia (Hurricane Irma)
The commonwealth of Puerto Rico (Hurricanes Irma and Maria)
The U.S. Virgin Islands (Hurricanes Irma and Maria)
The legislation provides for an employee retention credit of up to 40% on the first $6,000 of qualified wages paid to an eligible employee during the time the business was inoperable, for a total credit of $2,400 per employee.
Those wages must have been paid or incurred by an employer engaged in an active trade or business in a disaster zone, during the period beginning on Aug. 23, 2017 (for Hurricane Harvey-impacted businesses), Sept. 4, 2017 (for Hurricane Irma-impacted businesses), and Sept. 16, 2017 (for Hurricane Maria-impacted businesses) and ending on the date the business resumes significant operations at the principal place of employment or Jan. 1, 2018, whichever date occurs first.
The employee retention credit follows the treatment outlined in Section 38(b) for general business credits. Employees may only be counted once, meaning if the employer is taking the Section 51 work opportunity tax credit with respect to the employee, the employee would not be considered eligible for the retention credit.
Individual tax incentives
The legislation also provides for certain benefits to individuals impacted by the hurricanes:
Eliminates current law requirements that personal casualty losses must exceed 10%of adjusted gross income for deduction of uncompensated losses arising in a disaster area.
Eliminates requirement that taxpayers must itemize deductions for personal casualty losses.
Provides for an exception to the 10% early withdrawal penalty for retirement plans for qualified hurricane distributions.
Allows for the recontribution of retirement plan withdrawals for home purchases cancelled due to the hurricanes.
Increases the limit on loans not treated as distributions from a qualified employer plan.
Temporarily suspends the limitation under Section 170(b) for charitable contributions for contributions made between Aug. 23, 2017, and Dec. 31, 2017.
For 2017, allows taxpayers to refer to earned income from the immediately preceding year for purposes of determining the EITC and CTC.
In addition to this legislation, taxpayers in affected counties should consider the IRS’s postponement
of certain filing and payment deadlines related to various taxes and forms.
Director, Washington National Tax Office
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Senior Manager, Washington National Tax Office
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