April 10, 2014

As Tax Day Nears, Gillibrand Announces Irs Has Finally Clarified That 9/11 First Responders and Survivors Eligible for Tax Relief

Gillibrand: ‘Our 9/11 Heroes and Families Deserve the Tax Relief They Are Owed’

Washington, DC – As tax day nears, U.S. Senator Kirsten Gillibrand announced today that the Internal Revenue Service (IRS) has updated and clarified the guidelines to ensure that it’s clear that those that have fallen ill due to their work after 9/11 are still entitled to the tax benefits provided by the Victims of Terrorism Tax Relief  law. This action comes after Senator Gillibrand, last month, urged the federal agency to clarify its confusing and outdated publications that were mostly written in 2002 and do not make clear that the law still applies. 

Under current law, disability payments related to 9/11-related injuries and health problems are non-taxable.  Many 9/11 first responders and survivors, however, struggle to get their insurance carriers to comply with the law, or are unaware that these benefits are tax-exempt due to vague tax publications. Gillibrand also noted that the law clearly explains that the estates of those who die from 9/11 injuries are entitled to an income tax refund of $10,000.

Last month, Senator Gillibrand pressed the IRS to update its Publication 3920: Tax Relief for Victims of Terrorist Attacks publication and include clear examples of present-day situations faced by the injured, sick and dying 9/11 responders and survivors to ensure that they know to claim and receive the tax benefits they deserve.   

“Our 9/11 heroes who answered the call of duty deserve clear, unequivocal guidelines on the tax relief that they are entitled to,” said Senator Gillibrand. “Sadly, thousands of our injured and sick heroes and the families of the dying face unnecessary obstacles because of a bureaucratic blunder or are unaware of their right to a tax refund. The IRS is taking the right steps to update and clarify its publications and I will continue to fight for our responders to ensure they get back the tax benefits they are owed.”

Under the current Victims of Terrorism Tax Relief  law, if an individual receives disability or other benefits as a result of their illness or injury linked to a terrorist attack, including September 11th, those benefits are non-taxable.  In addition, if an individual dies as a result of a terrorist act, his or her family is entitled to at least a $10,000 refund.  The IRS Publication 3920: Tax Relief for Victims of Terrorist Attacks, however, did not adequately explain that disability payments for 9/11-related injuries are also exempt from taxes since the rules were published in 2002. The document also did not make clear that the families of those that have died from 9/11-related illnesses or injuries are entitled to an income tax refund of at least $10,000.

As a result, many employers, as well as the victims of terrorism themselves, were not aware of this law and 9/11 responders and survivors ended up being taxed on their disability payments.  Senator Gillibrand pushed the IRS to update its publications to employers and urged the agency to update their eligibility guidelines for individuals and employers since many are eligible to apply for retroactive tax refunds, making clear that those still suffering from injury, or the family of those who have died since 2002 would still be eligible for this tax benefit. The IRS has added a clarifying cover letter to its Publication 3920 in the interim while they work on updating the publications for the next tax year.

Full text of Senator Gillibrand’s letter to IRS Commissioner John Koskinen is below: 

 March 27, 2014

 Commissioner John Koskinen

Internal Revenue Service

1111 Constitution Avenue NW

Washington, DC 20224

 Dear Commissioner Koskinen,

             Thank you for your letter on January 23rd in response to my December 6, 2013 letter regarding information available to taxpayers in the Victims of Terrorism Tax Relief Act.

             I appreciate the update you have made to Publication 15 informing employers that there is no withholding of tax liability for disability payments for victims of terrorism under the current law. While it will certainly be helpful, I am concerned that it will not be enough to achieve the goal of providing readily accessible information to taxpayers of the tax relief that exists for victims of terrorism, both the availability of a tax refund for the families of those that die because of 9/11 injuries and the exemption of disability payments made for injuries caused by 9/11 from federal taxes.

             I believe that if we are to make sure that the victims of terrorism and their families are able to access their tax benefits under the law, we need to have Internal Revenue Service (IRS) immediately update Publication 3920: Tax Relief for Victims of Terrorist Attacks, Publication 559: Survivors, Executors and Administrators and Form 1099 R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

             Regrettably, nearly every week there is a report of a 9/11 responder or survivor dying from their recognized 9/11 cancer or injury and they and their families are unaware of their right to a refund of the taxes paid to the federal government. Many of those that are living with their injuries and have received disability insurance payments do not know that those payments are exempt from taxes.  Those that do know are struggling to get their insurance carriers to not withhold taxes. This is wrong and needs to be corrected immediately.

             While making an update to Publication 15 is helpful, when you search the term “tax relief for victims of terrorism” on the IRS website, Publication 3920 is the first item that appears. Further, Publication 15 is not in the top 20 choices and when you look at Publication 559, the publication that is supposed to help taxpayers and preparers deal with the issues regarding the returns of taxpayers that have died, there are no examples that reflect today’s circumstances and it suggests that taxpayers should refer to Publication 3920 for further information.  Even with the update that was made to Publication 15, it is not the document that is most used by taxpayers and their preparers.

            Without an updated explanation of the benefits under the law with examples that reflect the present situations faced by injured, ill and dying 9/11 responders and survivors, taxpayers and tax preparers may not be aware of the rights afforded to this population and taxpayers may end up paying more in taxes than they should. Publication 3920 is the document that individual taxpayers would most likely access to understand the tax relief they may be entitled to and I believe it should be reviewed and appropriate additions made to more accurately reflect the current situation. Publication 3920 does not, for example, adequately explain that the estates of those that are still dying from 9/11 injuries, particularly those who now have cancers recognized by the World Trade Center Health Program, are entitled to an income tax refund of the greater of $10,000 or the deceased’s income tax liability during the last three years.  It also does not specifically state that disability payments for injuries that were sustained in 2001 are still, in 2014, exempt from taxation. I believe that edits like these would help clarify IRS rules to 9/11 responders and survivors and their tax preparers.

             It is my strong belief that 9/11 injured and ill responders and survivors are not aware of the law and are not taking advantage of its benefits to them and their families.  Let me share with you two examples of individuals with which my office has worked.

             My office was contacted by a former New York City Employee who retired with a disability caused by his involvement with 9/11.  He attempted to get Prudential Insurance (Prudential), which managed the Group Disability Insurance Payments for the City of New York, to report his payments as non-taxable.  Prudential refused, which required my constituent to seek a refund of the payments when it should never have been paid in taxes in the first place. My office contacted Taxpayer Advocate Service, who apparently gave the wrong information the first time it was asked; my office pursued the matter further and received the correct interpretation from IRS.  I have enclosed redacted copies of the correspondence in this matter from Prudential, dated July 2, 2013, The Taxpayer Advocate, dated August 23, 2013, and IRS, dated August 30 2013.  It was only through my constituent’s perseverance and my offices’ assistance that he was able to get confirmation that his disability payments should not have been subject to tax.  Clearly, even the taxpayer advocate is not certain about the law’s application given what is available as reference materials.

             I have another constituent who retired from New York State government service with a 9/11 disability and only learned two years ago that her disability pension should not have been subject to federal taxes.   I have enclosed redacted copies of her letter to me outlining her issues and the correspondence from the New York State and Local Government Retirement System dated April 22, 2011. As a result of this lack of information, my constituent overpaid her taxes and is now barred from claiming a refund as she is past IRS’ three year deadline.

             9/11 responders and survivors need clear and direct information about their rights as taxpayers. I urge IRS to review these publications again and make appropriate changes as soon as possible.