Pryor Seeks Disaster Tax Relief for Arkansans

WASHINGTON D.C. – U.S. Senator Mark Pryor today joined a coalition of southern senators in sponsoring legislation that would provide tax relief to families, businesses, and local governments who were recently affected by tragic storms in the Southeast.

“After severe storms, tornadoes, and flooding swept through our state, Arkansans lost their jobs, homes, and many of their personal belongings,” Pryor said.  “In conjunction with the $60 million in federal assistance already provided by FEMA and the Small Business Administration, this bill will help communities rebuild, recover, and come out stronger than before.”

The Southeastern Disaster Tax Relief Act of 2011 consists of temporary tax provisions that were enacted as part of previous natural disaster responses bills.  These include the Heartland Disaster Tax Relief Act, which followed tornadoes and flooding in the Midwest in 2009 and relief bills that were passed in the wake of Hurricane Katrina.  The bill is fully offset by rescinding unobligated federal spending, and it will not increase the federal debt.

The benefits of the legislation would apply to individuals and businesses that are located in declared disaster areas and eligible for individual assistance by FEMA for storms between April 13 and June 7.   In addition, a limited number of benefits will be provided for areas designated eligible for public assistance. Thirty of Arkansas’s counties are eligible for individual assistance and 51 counties are eligible for public assistance. Under the bill, states eligible for assistance include: Alabama, Arkansas, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, and Tennessee.

Some highlighted tax provisions in the legislation are included below. 

Penalty-Free Withdrawals from Retirement Plans

This bill waives the 10 percent penalty tax for early withdrawals from retirement plans to allow individuals who were affected by the storms to utilize their savings in their recovery.  The total amount of penalty-free distributions an individual can receive from all plans, annuities, or IRAs is $100,000.  Individuals would be permitted to pay the income tax on distributions over a three-year period, and they could also re-contribute the distributions over a three-year period and receive rollover treatment. 

Losses to Individual’s Home and Property

Personal casualty losses result from the damage, destruction or loss of property from unexpected events, such as natural disasters.  Under present law, these losses are deductible by taxpayers who itemize only to the extent that the losses exceed 10 percent of individuals’ adjusted gross income and a $100 floor.  This proposal eliminates the 10 percent and $100 floor requirements for casualty losses resulting from these storms for 2011, allowing the full dollar amount of the losses not reimbursed by insurance to be deducted on individuals’ 2011 tax returns.

Tax-Exempt Bond Financing

This bill provides states and local governments in the Southeastern disaster area the authority to issue private activity bonds to spur private investment in the areas affected by the storms.  The amount of tax exempt bonds each state may issue is based on the state’s population in the disaster area multiplied by $1,000, resulting in $3.2 billion in bond authority for Alabama.  Bond proceeds can be used to pay for acquisition, construction, and renovation of nonresidential real property, low-income rental housing, low-income single-family residential housing, and public utility property (e.g. gas, water, electric, and telecommunication lines).  In order to participate, businesses must have either suffered an economic loss attributable to the disaster or be designated by the state as replacing a business that suffered a loss.  These provisions would remain in effect until January 1, 2018.

Employee Retention Credit for Employers

This bill provides a 40 percent tax credit to small businesses who continue to pay their employees while their business is inoperable.  These provisions apply to employers with fewer than 200 employees for wages paid up to $23,400 prior to January 1, 2012.

Low-Income Housing Credit

Under current law, states receive allocations of low-income housing credit based on population.  This proposal allows states to receive additional housing credit allocations through 2013 of $8 per person in the disaster area.

Senator Richard Shelby (R-AL) is the original sponsor of the bill.  Senators Jeff Sessions (R-AL), John Boozman (R-AR), Johnny Isakson (R-GA), Saxby Chambliss (R-GA), Claire McCaskill (D-MO), Roy Blunt (R-MO), Kay Hagan (D-NC), James Inhofe (R-OK) are also co-sponsors of the bill.

Please find a full summary of its provisions here.