Padilla, Feinstein Applaud IRS Decision to Exempt Utility Assistance from Federal Taxation

Announcement follows Senators’ request to IRS Commissioner to ensure the federal government does not tax households for receiving utility assistance

WASHINGTON, D.C. — Following a push by U.S. Senators Alex Padilla and Dianne Feinstein (both D-Calif.), the Internal Revenue Service (IRS) announced that water and energy assistance provided through the American Rescue Plan Act will not be treated taxable as income.

“We are glad the IRS listened to our concerns and welcome this clarification. This decision will help ensure that our COVID relief assistance is helping rebuild our economy in a more fair and equitable way,” the Senators said. “Californians already struggling to make ends meet during the pandemic should not have to worry whether receiving utility assistance would count as taxable income or make them ineligible for other tax benefits.”

In their letter to the IRS Commissioner, the Senators highlighted California’s efforts to use federal funds from the American Rescue Plan Act to deliver utility assistance to households or populations facing negative economic impacts due to COVID-19. California is using a portion of its $27 billion allocation to provide $993.5 million in assistance for electric and natural gas customers and $985 million in assistance for water and wastewater customers. Both programs will assist residential and commercial customers.

Senators Padilla and Feinstein strongly supported fiscal recovery funding for state, local, tribal, and territorial governments and its inclusion in the American Rescue Plan Act, which they voted to pass and was signed into law by President Biden on March 11, 2021.

Additionally, Senator Padilla helped secure a new Environmental Protection Agency pilot program in the bipartisan Infrastructure Investment and Jobs Act, the Rural and Low-Income Drinking Water Assistance Pilot Program, which will address water affordability by providing direct financial assistance and debt relief to water systems serving predominantly low-income households.