Navigating Federal Disaster Relief

What is Federal Disaster Relief?

To help taxpayers and businesses recover financially from the impact of a federally declared disaster, the IRS offers tax relief to assist during tax filing time. This includes opportunities to recoup some losses on a tax return--fast, get access to refund money faster, and even receive an extension for filing your return and additional time to pay taxes if you owe. Because millions of Americans are affected by federally declared disasters each year; hurricanes and tornadoes, wildfires and flooding, and many other types of disasters--the government tries to lessen the damage on hardworking Americans’ pockets.

However, it must be a federally declared disaster area. And unfortunately, just because you might have had damage after a bad storm, that doesn’t always mean you can write off the expenses to fix the damage on your tax return.

Who qualifies for disaster relief and what is an "affected taxpayer?”

The IRS defines an affected taxpayer as an individual, a business entity or sole proprietor, or any shareholder in an S Corporation affected by a federal disaster. A taxpayer does not have to be in a federally declared disaster area to be an “affected taxpayer.” Taxpayers are considered “affected” if records necessary to meet a filing or payment deadline postponed during the relief period are in a covered disaster area.

If an individual or business lives, works, or operates in a federally declared disaster area and incurs property damage or loss, and, depending on the type of assistance, does not have the insurance or other resources to meet their needs, they can qualify for disaster relief. While there are different types of general relief, there are also several in the tax code, ranging from tax deductions to extra time, to expedited tax loss deductions.

Throughout the year, the IRS updates their website so taxpayers can find the most recent tax relief provisions for those affected by disaster situations. The current list of eligible localities and other details for each disaster are available on IRS.gov. For example, for tax year 2023, there were more than 50 federal disaster areas on the list.

How do I claim casualty losses on my taxes?

Due to the Tax Cuts and Jobs Act of 2017, between the 2018 and 2025 tax years, the ability to deduct any general theft losses and every casualty loss has been eliminated, unless the losses were caused by and in a federally declared disaster, and the losses weren’t covered by insurance. To claim the casualty and theft loss deductions when they occur in a federally declared disaster area, you may not have to itemize deductions. Instead, you may be able to  subtract $500 for each major disaster and add the loss to your standard deduction.

In addition, some states don’t use the federal government’s rules, and will honor certain casualty and theft deductions that are not the result of declared federal disasters.

In short, losses and disaster losses are complicated, but they can pay big benefits on your federal and state taxes. Do not overlook them.

You claim these losses on federal tax return Form 1040, or on an amended return using Form 1040-X, as well as Form 4684 to report exact losses from the disaster, in the years after you originally filed.

Finally, you claim these financial losses on the tax return for the year of the federally declared disaster, or on the previous year’s return for an immediate refund. This means that if you or your business had damage from a storm in 2024, you can claim those losses on your original or amended 2023 return or on your 2024 tax return. You couldn’t claim damages from a 2020 storm on a 2024 return. But this is a tip not to be overlooked. The deduction of a qualified financial loss on a previously filed or pending filing from last year’s tax return can pay immediate and fast cash benefits.

Bottom line: There are two ways to claim a disaster on your federal tax return and they’re based on the type of disaster declaration.

• You can claim the standard deduction for this option - A “major” disaster declaration allows the direct addition to the standard deduction with only a $500 deduction.
• You must itemize deductions for this option - The other types of eligible federal disasters are based on subtracting $100 from each disaster, and a total of 10% of adjusted gross income from all disasters, then adding the allowed amount to Itemized deductions.

What other tax benefits are there for disaster relief?

The IRS can extend the due date for filing individual and business returns, paying taxes, quarterly estimates, and even business payroll taxes. The benefits include the ability to delay any payments to the IRS with no penalties. You should include the Disaster Declaration Number from FEMA on the top of your return. However, the IRS does look at zip codes when they receive the returns. This process is used to speed up processing and get money in your hands quicker. It is also used to suspend penalties and interest for late filing and/or paying, when needed. So do not play coy with the disaster rules. They are serious.

The IRS does not have a disaster relief tax credit, disaster relief payments, or disaster related credits or payments.

Lastly, the IRS automatically provides extended deadlines for victims of federally declared disasters. No need to file an extension 4868 form, this will happen by itself. But we do recommend that just because you get extra time, that you don’t take it “just because.” If you have everything available, you should file your tax return as quickly as possible.

Are there other types of disaster assistance?

Yes. FEMA provides financial assistance if you live in a presidentially declared disaster area.

To apply, you can either:

• Apply online at disasterassistance.gov,
• Download the free FEMA app,
• Call 1-800-621-3362,
• Or you can apply in person at a Disaster Recovery Center

To apply for additional disaster assistance through FEMA, you need: a Social Security number, insurance information, a description of the damage caused, your annual household income, contact information, and bank account information for the direct deposit.

Disaster aid can help with food assistance after a disaster via D-SNAP, as well as paying your mortgage, utility bills, credit card payments, student debt, and auto loans after a disaster.

Additionally, if you’re impacted by a federally declared disaster, you may be able to collect disaster unemployment benefits if you lost your job as a direct result of the disaster, cannot reach your job because of the disaster, or cannot work because of an injury sustained during the disaster. But be aware: when you collect unemployment benefits, this counts as income and needs to be reported on your tax return. Anyone who received unemployment benefits must pay federal income tax on those benefits.

However, state laws vary on whether unemployment recipients have to pay state income tax on the money they received. Some states require recipients to pay state income tax, while others say unemployment benefits are income tax exempt. Taxpayers who received unemployment benefits and did not withhold any federal or state income tax should consider setting money aside now to prepare for any payment shortfall (balance due) on their tax return.

Once you and your family have dealt with more pressing matters after a natural disaster, find a Jackson Hewitt office near you and work with a Jackson Hewitt Tax Pro.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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