The President has now signed H.R. 2884, the "Victims of Terrorism Tax Relief Act of 2001," a package including income tax relief and estate tax relief for the survivors of victims of terrorist attacks against the United States. This bill provides tax relief in many different areas for both victims' estates and survivors.
Key provisions included in the bill are:
- Individuals who die as a result of wounds or injuries incurred as a result of:
- The September 11, 2001 attacks
- The Oklahoma City attack on April 19, 1995, or
- The anthrax poisonings occurring on or after September 11, 2001
are exempt from income tax for the year of death and for prior taxable years beginning with the year before the year of the attacks.
Tax benefits will be a minimum of $10,000 to each eligible person regardless of the person's income tax liability for those tax years. This essentially means that if an eligible person's income tax for the years that are eligible for the exemption from tax is less than $10,000, that person is treated as if he or she made a tax payment for his or her last year in an amount equal to the excess of $10,000 over the amount of tax that is excused under this law.
Certain exceptions exist for the tax exemption. For example, the exemption doesn't apply to payments from retirement plans or IRAs to the estate of the victim or the victim's beneficiaries. However, the exemption applies to the payments of a victim's accrued vacation and sick leave to his or her beneficiaries and to the victim's final paycheck.
- Death benefits paid by an employer, either in a lump sum or in payments over several years, aren't taxable if the benefits are paid by reason of the death of an employee as a result of injuries from terrorist attacks.
- Workers' compensation benefits paid with respect to a terrorist victim are likewise not taxed.
- The estates of persons killed as a result of terrorist attacks are shielded from application of estate taxes to the extent of the first $8.5 million in estate net assets.
- Charitable organizations are permitted to make pro-rata payments prospectively to families of victims of the attacks without demonstrating financial need, without incurring any risk of disqualification as a tax-exempt organization.
- Private foundations can be set up by employers solely for the purpose of making payments to families of employees killed in the attacks.
- The Treasury Department is given latitude to postpone tax filing deadlines, payment deadlines (other than payroll taxes), and other tax-related filings for any taxpayer for which the Department determines has been affected by a Presidentially declared disaster.
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