Jun 15 2011
Today, Senator Richard Shelby (R-Ala.) introduced legislation that would use tax relief to aid in the recovery from the tornadoes and flooding that have devastated parts of the Southeast in recent months. The Southeastern Disaster Tax Relief Act of 2011 would provide assistance to families, businesses and local governments as they recover from the tragic storms. Senators Jeff Sessions (R-Ala.), Mark Pryor (D-Ark.), John Boozman (R-Ark.), Johnny Isakson (R-Ga.), Saxby Chambliss (R-Ga.), Claire McCaskill (D-Mo.), Roy Blunt (R-Mo.), Kay Hagan (D-N.C.), James Inhofe (R-Okla.) are original cosponsors of the bill. Senator Shelby made the following statement on the legislation:
“The tornado system that devastated the state of Alabama in late April, as well as other recent natural disasters that have plagued the Southeast, were exceptionally tragic events. However, it is important that we continue to pick up the pieces. The Southeastern Disaster Tax Relief Act of 2011 will help those affected do just that by providing temporary tax relief that is necessary in these dire circumstances. It is my hope that this legislation will help people and businesses rebuild and get back on their feet."
The legislation consists of temporary tax provisions that were enacted as part of previous natural disaster response bills that enjoyed overwhelming bipartisan support. This includes the Heartland Disaster Tax Relief Act following tornadoes and flooding in the Midwest in 2009 and relief bills that were passed in the wake of Hurricane Katrina. The bill is fully offset by rescinding unobligated federal spending, and it will not increase the federal debt.
The benefits in this legislation would apply to individuals and businesses that are located in declared disaster areas and are eligible for individual assistance through FEMA for storms between April 13 and June 7. Additionally, a limited number of benefits will be provided for areas designated eligible for public assistance. Forty-three of Alabama’s 67 counties are eligible for individual assistance, while all 67 counties are eligible for public assistance.
Under these criteria, the states eligible for assistance include: Alabama, Arkansas, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, and Tennessee.
Some highlighted tax provisions in the legislation are included below.
Penalty-Free Withdrawals from Retirement Plans
This bill waives the 10 percent penalty tax for early withdrawals from retirement plans to allow individuals who were affected by the storms to utilize their savings in their recovery. The total amount of penalty-free distributions an individual can receive from all plans, annuities, or IRAs is $100,000. Individuals would be permitted to pay the income tax on distributions over a three-year period, and they could also re-contribute the distributions over a three-year period and receive rollover treatment.
Losses to Individual’s Home and Property
Personal casualty losses result from the damage, destruction or loss of property from unexpected events, such as natural disasters. Under present law, these losses are deductible by taxpayers who itemize only to the extent that the losses exceed 10 percent of individuals’ adjusted gross income and a $100 floor. This proposal eliminates the 10 percent and $100 floor requirements for casualty losses resulting from these storms for 2011, allowing the full dollar amount of the losses not reimbursed by insurance to be deducted on individuals’ 2011 tax returns.
Tax-Exempt Bond Financing
This bill provides states and local governments in the Southeastern disaster area the authority to issue private activity bonds to spur private investment in the areas affected by the storms. The amount of tax exempt bonds each state may issue is based on the state’s population in the disaster area multiplied by $1,000, resulting in $3.2 billion in bond authority for Alabama. Bond proceeds can be used to pay for acquisition, construction, and renovation of nonresidential real property, low-income rental housing, low-income single-family residential housing, and public utility property (e.g. gas, water, electric, and telecommunication lines). In order to participate, businesses must have either suffered an economic loss attributable to the disaster or be designated by the state as replacing a business that suffered a loss. These provisions would remain in effect until January 1, 2018.
Employee Retention Credit for Employers
This bill provides a 40 percent tax credit to small businesses who continue to pay their employees while their business is inoperable. These provisions apply to employers with fewer than 200 employees for wages paid up to $23,400 prior to January 1, 2012.
Low-Income Housing Credit
Under current law, states receive allocations of low-income housing credit based on population. This proposal allows states to receive additional housing credit allocations through 2013 of $8 per person in the disaster area.
- Southeastern Disaster Tax Relief Act of 2011 - (46.3 KBs)
- Summary of Southeastern Disaster Tax Relief Act of 2011 - (17.8 KBs)