FEMA stands for the Federal Emergency Management Agency in the United States. This federal agency is responsible for providing support during times of disaster or emergency. FEMA has a stated goal of helping people before, during and after disasters. FEMA provides support in various ways, including offering grants and other funding to offset damages resulting from natural disasters or emergencies.
What Is a Federally Declared Disaster?
The president of the United States determines which disasters are deemed to be declared disaster situations. There are two primary categories of federally declared disasters: major disasters and emergencies. Both may be eligible for federal assistance from FEMA.
Regions impacted by such catastrophic events are referred to as disaster areas. Well-known examples of federally declared disasters include Hurricane Harvey and the California wildfires of 2017 and 2018. COVID-19 was also considered a federally declared disaster but is overall subject to specific tax treatments, as it was not a typical disaster.
There are a couple of ways to contact FEMA if a person is in need of assistance. DisasterAssistance.gov is the FEMA assistance website to apply for aid. Alternatively, assistance can be requested by phone through the FEMA helpline at 800-621-3362 or via FEMA mobile app.
Does FEMA Money Have to Be Paid Back?
Are emergency grants taxable? Simply, FEMA grant money is not taxable as income. This is important because FEMA assistance alone will not trigger a loss of Social Security or welfare. FEMA assistance will not go on a tax return, and it does not have to be paid back.
Casualty losses are damages to property as the result of unexpected events, especially natural disasters, such as wildfires or flooding. Casualty losses due to a federally declared disaster can be deducted on a tax return.
IRS Publication 515 outlines the three types of casualty loss: federal casualty losses, disaster losses and qualified disaster losses. Each type of loss is related to federally declared disasters, but there are nuances for tax purposes.
Federal casualty losses include the loss of personal property due to a federally declared disaster. Disaster losses are those originating from a federally declared disaster within a disaster area and may include business losses. Qualified disaster losses are losses due to a federally declared disaster that are subject to specific tax guidelines.
Are FEMA Benefits Taxable?
For tax purposes, IRS Publication 547 states that casualty losses cannot be deducted beyond losses attributable to a federally declared disaster. This means that only damages directly related to the disaster are eligible for a tax deduction.
Each casualty loss is reduced by both 10 percent of adjusted gross income and $100 for tax deductions. In cases of qualified disaster losses, there is no required percentage against income, but each loss is reduced by $500. FEMA money related to a federally declared disaster does not need to be included on a tax return as income.
Insurance claims due to casualty losses will reduce the amount of deduction from casualty loss events. Casualty losses of personal property are recorded on Form 4684 for tax purposes. Specific instructions must be followed for qualified disaster losses. Insurance reimbursements will go on line 3 of Form 4684.
Additional tax forms for recording casualty losses may include Schedule A, Schedule D or Form 4797 for business losses. Qualified disaster losses do not have to be recorded on Schedule A, which is commonly used for itemizing deductions.
While the tax treatment of FEMA assistance is rather simple, more complex casualty losses are usually attached to federally declared disasters. It is advisable to consult with a tax professional to review all casualty losses attached to a tax return and verify whether other grant funds are tax exempt.
Hashaw Elkins is a financial services and tax professional, as well as a project management consultant. She has led projects across multiple industries and sectors, ranging from the Fortune Global 500 to international nongovernmental organizations. Hashaw holds an MBA in Real Estate and an MSci in Project Management. She is further certified in organizational change management, diversity management, and cross-cultural mediation.