Qualified Disaster Relief Payments to East Palestine Derailment Victims Not Taxable Income

The IRS has issued guidance that certain payments received by victims of the train derailment in East Palestine, Ohio, may not be taxable. The IRS has determined (Notice 2024-46) that the derailment qualified as “an event of a catastrophic nature” and, as a result, payments made by the railroad to individuals affected by the derailment are “qualified disaster relief payments,” which by law are excluded from gross income. (IR 2024-156; Notice 2024-46, 2024-26 IRB; FAQs, 6/5/2024)

Note. Individual taxpayers qualify for this exclusion only if the expenses covered by the railroad’s qualified disaster relief payments are not otherwise paid for by insurance or other reimbursement.

Qualified disaster relief payments.

According to the Notice, the railroad issued Forms 1099-MISC to individuals for various payments, some of which are taxable and some of which are not taxable because they are qualified disaster relief payments.

The railroad made the following tax-free qualified disaster relief payments to victims of the derailment:

• 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; and
• Medical expenses.

The railroad also made the following taxable payments to victims of the derailment:

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

Reporting payments.

Victims of the derailment who have not yet filed their 2023 return do not need to report qualified disaster relief payments on their tax return, even if reported to them on Form 1099-MISC. However, taxable payments must be reported.

• If filing Form 1040 electronically, attach a.pdf attachment to the Form 1040 with filename “EPTDR-East Palestine Train Derailment Relief.” The attachment should state “East Palestine Train Derailment Relief.” Individuals may also state, “East Palestine Train Derailment Relief,” at the beginning of Part III, Explanation of Changes.
• If filing Form 1040 on paper, write “East Palestine Train Derailment Relief” at the top of Form 1040. Mail the Form 1040 to the address in the Form instructions.

Taxpayers who have already filed their 2023 tax return and reported their qualified disaster relief payments as taxable income can amend their return, report the exclusion, and claim a refund of any excess taxes paid. These taxpayers should use Form 1040-X to amend their 2023 tax returns.

Note. The IRS urges anyone who e-filed their 2023 return to e-file their amended return to speed processing.

The IRS has also issued East Palestine train derailment frequently asked questions that provide more details on this situation.

For more information about qualified disaster payments, see Checkpoint’s Federal Tax Coordinator ¶J-1291.