How do Disaster Payments, Like Those for the Oil Spill, Impact Your Taxes?

Joe Popp | July 16th, 2010

The IRS recently explained how recipients of payments by BP to oil spill victims for lost income should treat the payments for tax purposes, set up a special tax assistance day and established a special toll-free line for Gulf Coast area taxpayers.

Disaster Payments – Tax Impact

A recently issued guidance from the IRS explained that under current tax law, BP payments for lost income are taxable in the same manner as the wages or business income the payments are replacing. The law treats compensation for lost wages differently, for tax purposes, than compensation for physical injuries or property loss, which usually is nontaxable. A question and answer section explaining the tax law can be found on the IRS web site at

The IRS has also set up a special assistance day for Gulf Coast taxpayers to resolve issues including topics related to the oil spill on July 17 in Mobile, Alabama; Panama City and Pensacola, Florida; Baton Rouge, Houma and New Orleans, Louisiana; and Gulfport, Mississippi.

The IRS said it is also committed to helping taxpayers in the Gulf Coast who are struggling with tax payment or collection issues. The agency can assist with its Taxpayer Advocate Service, which helps taxpayers navigate the IRS. Under certain circumstances, the agency can postpone collection payments, provide flexibility for missed payments on installment agreements or offer compromise to individuals having trouble paying.

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