Ohio train victim payments are tax-free

Many payments to individuals affected by last year’s train derailment in East Palestine, Ohio, aren’t taxable. 

The Internal Revenue Service has determined that the Feb. 3, 2023, derailment qualifies as “an event of a catastrophic nature” and that payments to individuals by the common carrier that operated the derailed train are “qualified disaster relief payments” excluded from gross income.

Individual taxpayers qualify for the exclusion if the common carrier’s expenses covered by the qualified disaster relief payments aren’t otherwise paid for by insurance or other reimbursement.

Common carrier-issued 1099-MISCs to recipients of various payments could be taxable, but some aren’t because they are qualified disaster relief payments. Tax-free payments made by the common carrier are:

• One-time $1,000 “inconvenience” payments to affected individuals;
• Relocation expenses and expenses for replacing clothing and personal items;
• Costs of repairing or rehabilitating homes and the surrounding environment;
• Compensation to homeowners who sold their homes after the derailment; and,
• Medical expenses.

Taxable payments include lost wages; access payments to property owners to allow the common carrier access to the train track for remediation and to clean nearby creeks and streams; and payments to businesses.
Returns should state “East Palestine Derailment Relief.” Taxpayers who haven’t filed their 2023 return do not need to report qualified relief payments even if those payments were reported to them on a 1099-MISC. Taxable payments must be reported.

Taxpayers e-filing a 1040 should attach a .PDF with the filename “EPTDR-East Palestine Train Derailment Relief” (the attachment should state “East Palestine Train Derailment Relief”). If filing a paper 1040, state “East Palestine Train Derailment Relief” at the top and mail the form to the address in the instructions. Individuals may also state “East Palestine Train Derailment Relief” at the beginning of Part III, “Explanation of Changes.”

Any taxpayer who has already filed their 2023 tax return and reported their qualified disaster relief payments as taxable can amend their return, report the exclusion and claim any refund of taxes paid by filing a 1040-X. Anyone who e-filed their 2023 return should e-file their amended return.

If filing a paper 1040-X, the taxpayer should put “East Palestine Train Derailment Relief” at the top as well as at the beginning of Part II, “Explanation of Changes,” and mail the form to the address in the instructions.