Tax relief for families impacted by Red Hill water contamination

The State of Hawai‘i will not require those families and individuals adversely impacted by the Red Hill fuel crisis to pay state taxes on relief provided by the federal government to cover expenses, according to an announcement made by Governor Josh Green, M.D.

Gov. Green’s decision follows the US Internal Revenue Service announcement that targeted tax exemptions would be provided to those individuals and households who received relief after being uprooted from their homes as a result of the contamination of their drinking water. 

“Under these extraordinary circumstances, I applaud the IRS for doing what’s right,” said Gov. Green.

On March 2, 2023, the State of Hawai‘i Congressional Delegation united to send a letter to IRS Acting Commissioner Douglas O’Donnell demanding exemptions for any assistance provided by the Department of Defense due to the crisis.

“I am pleased and grateful that our delegation worked together on behalf of those residents impacted by the Red Hill Fuel Leak,” said Gov. Green, “Their teamwork on this critical matter is life-changing for those impacted.” 

Local families, including military personnel living on O‘ahu, received reimbursements for hotel lodging, meals and personal property damage expenses from the US Department of Defense as a result of the Navy’s contamination of the drinking water distributed by its system, were initially informed that the reimbursements would be considered taxable income.

The reimbursements for “Emergency and Extraordinary Expense” payments can be excluded from gross income calculations according to Section 139 of the Internal Revenue Code, as long as the expense was not also compensated for by insurance, because EEE payments are qualified disaster relief payments.

Director Gary Suganuma of the Department of Taxation will oversee the State’s alignment with the guidelines of the IRS to ensure that the same exemptions apply for state taxes. DOTAX also will not assess state income taxes on the reimbursements.

Official guidance will be posted on its website, in the “Announcements” section, for taxpayers to follow.