People who receive federal grants to relocate or safeguard their homes from hurricanes, flooding or other natural disasters wouldn't have to pay taxes on that money under a bill approved by the House on Monday.
The Internal Revenue Service (search) determined last year that these hazard mitigation grants were taxable under the current law, prompting lawmakers from states recently hit by hurricanes in the Southeast and flooding in the Midwest to seek a tax exemption for the grants.
Previously, these Federal Emergency Management Agency (search) grants had not been taxed because they were assumed to be tax-exempt. Without this bill, property owners currently seeking FEMA grants and those who received federal assistance as many as 15 years ago would have to pay up.
Rep. Mark Foley (search), R-Fla., the bill's sponsor, said "2004 was a busy, busy year for Floridians, with four hurricanes striking landfall, and the last thing people need to be dealing with is an income tax burden placed on them for accepting grants from the federal government."
The bill had strong bipartisan support in the House and passed on a voice vote. Sen. Kit Bond, R-Mo., has sponsored a companion measure in the Senate, which was expected to quickly pass the bill in time for this year's April 15 tax deadline.
The proposal is also backed by President Bush, who included $20 million in his budget proposal for next year and $400 million over 10 years to pay for making these grants tax-free.
"Clearly the administration believes that these grants are important to help people prevent future damages and should not be taxed," said Treasury Department spokesman Taylor Griffin.
Rep. Rob Portman, R-Ohio, said many Ohioans are recovering from seven federal disasters declared in his state in the last 18 months, mostly due to flooding caused by severe winter storms. They would fall through the cracks if the FEMA grants were taxed, he said.
"It is often the only hope for repetitive loss disaster victims," said Portman, a co-sponsor. "Many of the people who have taken advantage of such assistance are people living in lower-valued property in the flood plain who cannot afford to move on their own."
Since FEMA's hazard mitigation grant program started in 1990, some 43,269 federal grants, totaling more than $1.9 billion, have gone to property owners nationwide, FEMA spokesman Butch Kinerney said.
These grants differ from money paid to residents right after an emergency to help with cleanup efforts. That money already is exempt from state and federal taxes.