Hurricane Katrina: Disaster Relief Payments

Under Section 139, taxpayers do not have to pay Federal income or employment taxes on qualified disaster payments they receive from their employers, as long as they pay for expenses not paid by insurance or otherwise. Qualified disaster payments include amounts that reimburse or pay for reasonable and necessary:

• Personal, family, living or funeral expenses; and

• Expenses incurred to do either of the following:

1. Repair or rehabilitate a home, or

2. Repair or replace its contents.

FEMA Debit Cards

If taxpayers received a $2,000 debit card from the Federal Emergency Management Agency (FEMA) to reimburse or pay for allowable expenses, they do not have to pay Federal income or employment taxes on those funds, as long as they do not receive reimbursement for those expenses from another source.

From Linda Gurene, San Antonio, TX