IRS Announces Tax-Free Payments For Thousands

Thousands of Americans do not have to pay tax on the payments they were given for the fallout of last year’s catastrophic train derailment in East Palestine, Ohio.

The Internal Revenue Service (IRS) made the announcement on Wednesday, after determining that a derailment qualifies as “an event of a catastrophic nature,” meaning related payouts are “qualified disaster relief payments.”

On February 3 last year, a freight train carrying hazardous materials was derailed and sent toxic chemicals into the air, ground and water in the area around East Palestine.

Operator Norfolk Southern has already spent more than $1.1 billion on its response, which includes more than $104 million in direct aid to East Palestine residents.

People across Ohio, Pennsylvania and West Virginia have received some kind of payment.

The IRS has said many recipients will not have to pay tax on these kinds of payments, as “qualified disaster relief payments” are legally excluded from gross income. However, this does not apply to payments made by insurance or other reimbursement entities.

The following disaster relief payments made by the common carrier qualify as tax-free:

• One-time $1,000 “inconvenience” payments to affected individuals
• Relocation expenses and expenses for replacing clothing and personal items
• Cost of repairing or rehabilitating homes and the surrounding environment
• Compensation to homeowners who sold their homes after the derailment
• Medical expenses

The following disaster relief payments are still taxable:

• Lost wages
• Access payments to property owners to allow the common carrier access to the train track for remediation and to clean nearby creeks and streams
• Payments to businesses

How to do your tax returns if you have been given payouts over the East Palestine train derailment:

If you have not yet filed your 2023 return, you do not need to report qualified disaster relief payments—but make sure you included any of the above payments that are still taxable.

If you file your Form 1040 electronically, attach the Form 1099-MISC that Norfolk Southern would have issued with your payment as a PDF and name it “EPTDR-East Palestine Train Derailment Relief.”

If you file via paper, state the words “East Palestine Train Derailment Relief” at the top of your Form 1040.

If you have already filed your 2023 return and have declared your qualified disaster relief payments, you can amend your return, report the exclusion and claim a refund for taxes paid with Form 1040-X.

The same file name guidelines apply for this form as well, but you can also add “East Palestine Train Derailment Relief” at the beginning of Part III, Explanation of Changes.