On Oct. 2, President Donald Trump signed into law the Disaster Tax Relief and Airport and Airway Extension Act of 2017, which provides additional disaster relief for victims of hurricanes Harvey, Irma, and Maria. The IRS is maintaining a list of counties located within the disaster zones of each hurricane that are eligible for relief.
Employee Retention Tax Credit
The legislation provides employers an employee retention credit of up to $2,400 per eligible employee. Employers are eligible for the credit if they maintained an active place of business in a disaster zone and the business was rendered inoperable for some period of time between the date of the hurricane and Jan. 1, 2018. An eligible employee is an employee whose principal place of employment was in the disaster zone as of the date of the hurricane. The credit is equal to 40 percent of the first $6,000 of wages paid to an employee from the time the employer's trade or business first became inoperable at the employee’s principal place of employment until the earlier of the date on which the trade or business resumes significant operations or Dec. 31, 2017.
Charitable Deduction Limitations Suspended
Charitable contribution deductions by individuals and businesses normally are limited to a percentage of income. The legislation temporarily suspends this limitation and provides an exception from the overall limitation on itemized deductions for qualified contributions. Qualified contributions are contributions paid in cash to most charitable organizations between Aug. 23, 2017, and Dec. 31, 2017, for relief efforts for hurricanes Harvey, Irma, or Maria. The suspension of the limitations does not apply to donations made to supporting organizations or to donor-advised funds. Individuals claiming the deduction must receive a contemporaneous written acknowledgment that the donation was or is to be used for relief efforts. Partnerships and S corporations making qualified contributions should provide details about any qualifying contributions to their investors because the election is made at the individual level.
Other Individual Relief
The legislation provides for several other items of relief specific to individuals affected by hurricanes Harvey, Irma, or Maria.
- Individuals whose principal residence is in a disaster zone and who suffered an economic loss can take a distribution of up to $100,000 from pension plans and IRAs without being subject to the 10 percent penalty tax for early withdrawals. Distributions may be repaid within three years on a tax-free basis. If not paid back, the distribution will be included in income over a three-year period beginning with the year any amount is required to be included in income.
- Casualty losses generally are deductible only for individuals itemizing deductions if the casualty loss exceeds 10 percent of adjusted gross income. Under the legislation, individuals who do not itemize deductions can claim hurricane-related casualty losses, and the 10 percent threshold will not apply.
- Individuals whose principal residence is in a disaster zone may use a modified calculation to determine their eligibility for the earned income tax credit and the child tax credit.