New Hampshire’s PFAS rebate program reimburses private well users – those who are not covered by the state’s consent decree agreement with identified polluter Saint-Gobain Performance Plastics – to remediate PFAS contamination in their wells or connect to a public water supply. (Getty Images)
Last spring, Congressman Chris Pappas filed legislation to change the Internal Revenue Service’s tax code in regard to state-issued PFAS remediation rebates. Now he’s working another avenue: asking the IRS to fix the issue itself.
In a letter to the IRS and Department of the Treasury this week, Pappas joined with Michigan Congressman Dan Kildee, fellow co-chair of the Congressional PFAS Task Force, in a continued pursuit to see that private well users are not taxed on rebate payments they receive for PFAS remediation.
It happened in New Hampshire this year, and could happen elsewhere if other states set up similar programs, particularly in light of the Environmental Protection Agency’s updated national drinking water standards for PFAS, often called “forever chemicals.”
The first of its kind in the country when it launched last year, New Hampshire’s PFAS rebate program reimburses private well users – those who are not covered by the state’s consent decree agreement with identified polluter Saint-Gobain Performance Plastics – to remediate PFAS contamination in their wells or connect to a public water supply.
This past tax season, rebate recipients were surprised when they received 1099-G tax forms in the mail, telling them the payments were considered federal taxable income by the IRS.
Adding to the confusion, the state advised that it doesn’t give out tax advice and encouraged people to seek further clarification about the 1099 forms from their own tax professionals.
In April, Pappas introduced the No Taxation on PFAS Remediation Act, which has yet to have a hearing in Washington. But both he and Kildee argue in their letter that the solution already lies within the IRS’ existing guidance.
Designating state-issued rebates as nontaxable, they wrote, “would be consistent with the federal tax treatment of similar special payments made by 21 states in 2022.” This past February, Pappas and Kildee pointed out, the agency told taxpayers to consider filing amended returns if they’d filed early enough in the season and reported certain state 2022 tax refunds as taxable incomes.
Pappas and Kildee argue that PFAS remediation rebates fall under “general welfare and disaster relief payments,” which are exempt from federal income tax. According to updated guidance issued by the IRS in August regarding state tax payments, in order to qualify for the general welfare exclusion, state payments must “be paid from a governmental fund, be for the promotion of general welfare (based on the need of the individual or family receiving such payments), and not represent compensation for services.”
The quickest way to address the problem, the congressmen advocated, is for the IRS to immediately issue formal messaging recognizing rebates as exempt from federal income tax.
“These PFAS rebate payments should be exempt under the agency’s own existing guidance,” Pappas and Kildee wrote. “No one spending their hard-earned money to ensure that their water is safe to drink should face an added tax burden from the federal government. While New Hampshire’s program is the first of its kind, other states can and should follow in its footsteps. It’s clear that federal tax law needs to be clarified permanently.”
They also encouraged the IRS to contact taxpayers who have paid additional income tax as a result and direct them to file amended returns “to ensure they receive their money back as soon as possible.”
According to the Department of Environmental Services, since the start of the PFAS rebate program in July 2022, 852 applications have been received and 773 have been processed and paid. Close to $3 million ($2,982,232.11) has been reimbursed.
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