Is covid-19 considered a natural disaster for taxes?
The pandemic was declared a "qualified disaster," but tax law means there is little extra to claim back from the IRS.
Despite dwindling case numbers in the US, but still very high numbers of daily deaths, the covid-19 pandemic is still continuing.
Many are wondering what the pandemic means for their tax returns, especially as the tax season is open from now until mid-April.
An aspect that could have potentially affected your tax return is 'qualified disaster relief,' special funds allocated by the federal government in times of natural crisis. However, a loophole means that despite having the title, people who have missed work due to contracting covid-19 get no extra tax break.
What is qualified disaster relief?
Qualified disaster relief is money that the federal government provides to people who have been affected by natural disasters in the US. Usually, this applies to events such as tornadoes and wildfires.
An employee who receives qualified disaster funds has to pay tax on said funds, but can spread the taxable income over three tax years.
In addition, the Qualified Disaster Distribution is exempt from the 10 percent penalty tax that can apply for early distributions from tax-qualified plans.
How does this relate to the pandemic?
The pandemic was declared a qualified disaster on March 12, 2020, and has been extended to cover the whole covid-19 disaster.
There was some hope that this would mean time taken off work because of covid-19 illness could lead to a tax cut, as per regulations regarding natural disasters.
But the IRS has quashed rumor of this by pointing out that in the covid-19 outbreak:
Basically, what this means is that the payments do not include qualified wages that are paid by an employer, even those that are paid when an employee is not providing services.