IRS: BP Payments For Lost Wages Should Be Taxable

WASHINGTON — The Internal Revenue Service says oil spill victims who receive BP payments for lost wages will have to pay up come tax time.

Under current law, BP payments for lost wages are taxable – just like the wages would have been, the IRS said in tax guidance issued Friday. Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress? Taxable, though medical expenses related to the emotional distress are deductible.

BP officials have agreed to create a $20 billion fund for spill victims, as well as a $100 million fund to support displaced oil rig workers.

The IRS issued the guidance Friday to help spill victims sort through the law's complexities. The agency has posted tax information for oil spill victims on its website and plans to hold forums in seven Gulf Coast cities on July 17 to help victims with tax troubles or questions.

"As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it," IRS Commissioner Doug Shulman said. "We encourage anyone who has an issue with the IRS to contact us and explain their hardship, and we will work with them to find a solution."

"We'll do everything we can under current law to help taxpayers," Shulman added.

Rep. Charlie Melancon, D-La., introduced a bill this week to exempt from taxes all BP payments to spill victims, though its prospects for becoming law were uncertain.

"Compensation from BP will help, but during this uncertain time Louisianians will need to stretch every dollar and should not have to worry about setting aside a portion of the payments for taxes," Melancon said in a statement.

Ken Hoagland, chairman of the National FairTax campaign, an anti-tax group, said, "These modest payments are just putting food on the table and should not be taxed."

The IRS has a number of programs to help people who make a good-faith effort but cannot afford to pay their tax bills. Agents can postpone collections in certain hardship cases or allow delinquent taxpayers to skip installment payments if they have made timely payments in the past.

The IRS will hold its July 17 forums for oil victims in these cities: Mobile, Ala.; Panama City, Fla.; Pensacola, Fla.; New Orleans; Houma, La.; Baton Rouge, La.; and Gulfport, Miss.

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On the Net:

IRS guidance: http://tinyurl.com/33jus6j

File a claim: http://www.Disasterassistance.gov

Comments

[suzc]

08:04 AM on 06/29/2010

Maybe IRS boss Timmy Geithner could tell everyone how he cheated on his taxes and avoided paying them so Gulf residents who really need the money can do it too. After all, if it's fair for Timmy it's far for everyone isn't it.

[rhubardpi]

01:23 AM on 06/29/2010

If you think the IRS treats everyone alike you don't know the IRS I worked at for 28 years. Much of upper management I encountered, and that includes former IRS Commissioner Charles Rosotti, are incompetent at best. As far as I'm concerned Rosotti should be brought to trial for aiding and abetting non-payment of taxes. If you don't like that Charlie, then sue me, you know who I am. Good luck America, enjoy your next April 15.....suckers.

[Frogs]

01:16 AM on 06/29/2010

Compensation for lost income is taxable in every context (court award, settlement, unemployment benefits, etc., etc.). No story here. Seems to me folks in the Gulf should be glad to pay taxes to the government that required their compensation in the first place. That would be the federal government -- you know, the one trying to put a moratorium in place to avoid any other oil volcanos from destroying the Gulf, despite the best efforts of the Gulf states to keep the oil pumping.

[ConservativeUSA]

01:01 AM on 06/29/2010

This is a shady, tricky way for the government to take the money that is supposed to indemnify the people of the Gulf. With this White House, you can expect anything and everything to be chocked full of lies and deception and tricks.

[rhubardpi]

01:29 AM on 06/29/2010

Can we talk about astute for a minute?, Even people earning minimum wage will often owe taxes on their earnings. Certainly SS tax. So whats the problem? Are you being deceptive by by your strawman argument? Chock full of lies yourself maybe?

[Frogs]

01:42 AM on 06/29/2010

It's a shady trick to tax income? Ok buddy.

[My Good Babushka]

03:57 PM on 06/28/2010

Then they will give billions of those tax dollars back to BP in subsidies.

[mjcarrasquillo]

12:37 PM on 06/28/2010

Can someone please tell me if the IRS taxed the banks for the Bailout? That was considered income ya know....

[jwoww]

03:49 PM on 06/28/2010

interest and fees were paid back to the fed. the TARP fund was a success with regards of all the money being repaid with interest. It was the losses to the Government Motors, Chrysler, Fannie and Freddie that were losers with TARP. also the fact that BO did not use the returned money to pay down the debt Tarp was formed from.

[suzc]

08:05 AM on 06/29/2010

interest and fees are not income tax

[Figerre]

10:57 AM on 06/28/2010

before anyone gets their knickers in a twist, Unemployment Benefits are taxed, both state and federal and by the IRS. there is no such thing as 'free money' until you are ultra wealthy and have a bevy of lawyers.

[topwesselton]

12:20 PM on 06/28/2010

Some states tax unemployment benefits, others do not. New Jersey does not tax unemployment for example.

[abbienormal]

12:49 PM on 06/28/2010

But they are federally taxed.

[rhubardpi]

01:37 AM on 06/29/2010

I worked for the IRS Collection Division for 28 years and I can assure you I saw numerous cases of people getting a "free ride", (not paying the delinquent taxes they owed even though the casefile evidence clearly showed they could pay the debt), due to a unique position I held for awhile, until I started yelling too loud about what I was seeing. And no I am not talking about the IRS program called "offers-in compromise". I even told IRS Commissioner Rosotti in person about what I saw. His response was to look around the room and say, "Next question". Good night and good luck.

[local21]

07:21 AM on 06/28/2010

a teabaggers dream comes true

[noratoo]

09:44 PM on 06/27/2010

How about letting BP pay taxes on their profits, and while they are at it, they can pay the tax on these BP Oil Disaster restitution checks too.

Every once in a while there is a sale here and there where the store pays the sales tax. BP could do the simil;ar thing. Get BP to PAY THE TAX.

[hobo62]

08:53 PM on 06/27/2010

Let's see. How many of the "Corporations" pay taxes? At what percentage?

Something is wrong when a "hedge Fund Manager" gets 65% of his income tax free. But a minimum wage waitress has to pay taxes on her tips.

I hope the people in the Biggest Polluter spill tell the IRS to stick it.

[01202009]

04:18 PM on 06/27/2010

Income should be taxed according to the law. Period. Unemployment is taxed. I understand that people who go through bankruptcy on credit cards are taxed on the amount forgiven. Etc.

That said. Why do we let the wealthiest 1% pay very little tax? Why does Exxon pay no tax in the US? BP?

Could it be that the congress is biased in favor of Big Money?

[bluejoni2525]

03:45 PM on 06/27/2010

If I'm not mistaking isn't unemployment taxable ???? If so then why shouldn't the payment for lost wages be taxable ??

[suzc]

08:09 AM on 06/29/2010

Maybe neither should be taxable.
Why should corporations and millionaires have loopholes letting them often pay ZERO income tax on millions and billions while the poor must pay 15%?
All we're asking is a level playing field, paying one's fair share.
How much would we collect if every corp and every rich person paid even 15% in income tax?

[rollingrock]

02:57 PM on 06/27/2010

And yet BP doesn't pay a dime in royalties or taxes to the IRS. Despite being the one of the top three most profitable industries along with defense and insurance, the oil industry enjoys $550 billion a year in tax breaks and subsidies from the IRS. Who was it that said 'we don't pay taxes. only the little people pay taxes.'

[01202009]

04:13 PM on 06/27/2010

Leona Helmsley, the Queen of Mean.

[rhubardpi]

01:44 AM on 06/29/2010

In my 28 years with the IRS I saw more than a few people in Upper Management who as much as said the same thing. Do you wonder why you don't know about this? Now if the IRS agent lets a delinquent taxpayer get away with not paying his tax debt, even though he can pay it, who is going to complain to the public? Not the IRS agent who let it happen, not the IRS agent's manager who signed off approving the case, and most certainly not the delinquent taxpayer. Do ya get it?

[mudshark12]

12:43 PM on 06/27/2010

Below is the 1st sensible statement from a politician that I've heard from the year 2010:

"Rep. Charlie Melancon, D-La., introduced a bill this week to exempt from taxes all BP payments to spill victims, though its prospects for becoming law were uncertain.

"Compensation from BP will help, but during this uncertain time Louisianians will need to stretch every dollar and should not have to worry about setting aside a portion of the payments for taxes," Melancon said in a statement."

These people NEED all of the help they can get. Compensation for lost wages is NOT necessarily the same thing as wages as there is absolutely NO guarantee that, when this crisis is over, people in the gulf states will be ever be able to get their old jobs back.

[noratoo]

09:53 PM on 06/27/2010

An exemption of this sort would mean that when the BP payments are funneled to disaster capitalists (which seems very likely since these corporate exploiters like to keep the money in the Elite Class), those grafters/grifters/etc. won't have to pay taxes. It's not taxes coming in that's mean; it is who is made to struggle further. Let BP and friends do the struggling, not the people of the Gulfcoast who are the victims of BP's recklessness and failed emergency response plan.

I say let BP pick up the tax bill for those who get checks. It is the least they can do: Disburse tax-free lost income checks.

[rhubardpi]

01:48 AM on 06/29/2010

How very thoughtful, although you may have forgotten one small item, how many people have jobs guaranteed for life? In today's lesson we will look up the word, "astute".

[vippy]

08:24 PM on 06/26/2010

Well, the IRS won't go after the tax cheats but they will suck the last penny out of the little people,
who have waited weeks to even get their first check. I think the people who had to wait should
send the IRS a bill for lost income. Vote all of the incumbents out of office, keep them for one term only and I bet after the 3rd time they will offer a complete redo!