Civilians in Hawaii won’t have to pay taxes on the reimbursements they received from the Defense Department for expenses related to the Red Hill fuel spills, the Internal Revenue Service announced Wednesday.
Some of these civilians, including some military retirees, would have been on the hook for thousands of dollars in taxes if the issue hadn’t been resolved. This tax issue didn’t affect currently serving military members and their families, who also received reimbursements.
Those haven’t already filed their tax returns shouldn’t include those payments in their gross income on their tax returns, IRS officials said in the announcement. The deadline for filing tax returns for most is April 18.
Taxpayers who have already filed their 2022 tax returns and included the payments in their gross income should file amended returns using Form 1040-X, Amended U.S. Individual Income Tax Return.
A number of federal civilian employees and other civilians who aren’t employed by the federal government received 1099 forms from the Defense Finance and Accounting Service, reporting as income the reimbursements they received from the military because they were affected by the Navy’s toxic jet fuel spill in drinking water in late 2021 and early 2022.
Some people chose to leave their homes while officials worked to flush out the fuel. Others remained in their homes but were instructed not to use or drink the water. They were reimbursed for hotels, meals and, in some cases, personal property.
Defense officials have been in close communication with the IRS and the Treasury Department in seeking tax relief for these civilians, said Susan Mitchell, DoD tax counsel and executive director of the Armed Forces Tax Council.
The Treasury Department and the IRS decided that the Red Hill fuel spill is a qualified disaster under federal law because the secretary of the Navy determined it warranted assistance from DoD, according to the IRS announcement. In addition, the reimbursements were made in order to promote the general welfare and weren’t compensation for services.
The IRS provided additional instructions for these taxpayers:
- If taxpayers already filed their 2022 tax return electronically and included the reimbursements in their gross income, they should electronically file IRS Form 1040X. Officials said most electronic tax software and tax professionals offer an electronic amended return filing option. The “Explanation of Changes” should begin with “Red Hill Relief” in the electronic form.
- *If the form is filed on paper, mark the top of Form 1040-X with “Red Hill Relief” and begin Part III, “Explanation of Changes,” with “Red Hill Relief.” The paper amended return should be mailed to: Department of the Treasury, Internal Revenue Service / Austin, TX 73301-0052.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.