Alex Padilla U.S. Senator for California

WASHINGTON, D.C. — U.S. Senators Alex Padilla (D-Calif.), Cynthia Lummis (R-Wyo.), Ron Wyden (D-Ore.), and Tim Sheehy (R-Mont.) introduced the Protect Innocent Victims of Taxation After Fire Extension Act to permanently ensure wildfire survivors are not taxed on compensation they receive for losses and damages suffered during a fire.

This bipartisan legislation would extend and make permanent Padilla and Lummis’ bill signed into law last year, which excluded wildfire-related settlement payments from federal income tax calculations. This includes payments that cover living expenses, lost wages, or compensation for injury, death, or emotional distress. The bill was signed into law as part of the Federal Disaster Tax Relief Act, which ensured taxes paid on payments made from the Pacific Gas and Electric Company (PG&E) Fire Victim Trust for three major California fires in 2015, 2017, and 2018 were refunded and not taxed.

However, this exclusion, which received unanimous support in the Senate, is set to expire at the end of the 2025 calendar year. Failure to extend this provision means any wildfire-related settlement payments beginning in 2026 will again be subject to federal income tax obligations. With utility-caused fires on the rise, more and more states have qualifying settlements or active litigation, including again in California with the Eaton Fire in Los Angeles County. This bill would allow wildfire survivors to put the full amount of their settlement money toward recovering from devastating losses.

“When a fire survivor is wading through the ashes of their former home, and thinking about how to rebuild their life, the last thing they should have to worry about is how they’re going to afford to pay taxes on any settlement they receive,” said Senator Padilla. “Last year, we finally fixed our outdated tax code to make sure that individuals, families, and entire communities who have suffered from utility-caused wildfires aren’t taxed on the compensation they need to recover. But with this important provision set to expire at the end of the year, and with devastating wildfires on the rise, we must make this commonsense, bipartisan solution permanent to protect Americans during one of the most difficult times in their lives.”

“Wyoming is not immune to the devastation that wildfires cause. In the aftermath of these disasters, the damage is catastrophic, and the families and communities affected should be able to focus on healing and rebuilding, not on setting aside part of their insurance to cover taxes,” said Senator Lummis. “The Protect Innocent Victims of Taxation After Fire Extension Act ensures every dollar of wildfire insurance is used to help people recover and restore what they’ve lost, not line Washington’s pockets.”

“When Oregonians are rebuilding their lives after a wildfire, the last thing they need is to get clobbered with a big tax bill on their financial settlements,” said Senator Wyden. “This is a commonsense way of making sure wildfire survivors can use every settlement dollar they receive to repair their homes and businesses. It’s also a smart way to pump more resources back into devastated communities that need all the help they can get. My colleagues and I are going to fight to get this passed as soon as possible, because making this tax relief permanent is a no-brainer.”

“In addition to strengthening our wildland firefighting apparatus, we must provide victims of catastrophic wildfire the support they need to rebuild their lives, homes, and communities,” said Senator Sheehy. “No tax on wildfire disaster settlement compensation is common sense, and I’m proud to deliver much-needed relief with this bill as we continue working to prevent future tragedies with comprehensive wildfire reform.”

Additionally, the Protect Innocent Victims of Taxation After Fire Extension Act would allow victims to claim the exemption in the year they receive payments rather than to amend prior tax returns for a refund.

Representatives Doug LaMalfa (R-Calif.-01) and Mike Thompson (D-Calif.-04) are leading similar legislation in the House of Representatives.

This extension represents a bipartisan and bicameral commitment to ensuring wildfire survivors receive the help they need without facing additional financial barriers. By extending this landmark tax relief, this bill would give individuals the certainty they deserve while they work to recover and rebuild after devastating fires.

Last year, Senator Padilla spoke on the Senate floor following the unanimous passage of the Federal Disaster Tax Relief Act, which included his Protect Innocent Victims of Taxation After Fire Act. After the bill was signed into law, Padilla, Thompson, and LaMalfa urged the Internal Revenue Service (IRS) to take immediate actions to implement their bipartisan legislation to provide critical tax relief and get money back into the hands of wildfire survivors.

A one-pager on the bill is available here.

Full text of the bill is available here.

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