Sens. Feinstein, Padilla call for utility assistance to be exempt from federal taxes

In a letter to the Internal Revenue Service (IRS) last week, U.S. Sens. Dianne Feinstein (D-CA) and Alex Padilla (D-CA) called for clarification that utility assistance provided by the American Rescue Plan Act is exempt from federal income taxation.

At stake are numerous households, who could face extra potential taxes merely for receiving assistance during the COVID-19 pandemic. The senators pointed to the importance of this by citing their home state, as California utilized $993.5 million of its $27 billion allocation under the federal act to assist electric and natural gas customers — both residential and commercial. Another $985 million was to be used for assisting both water and wastewater customers.

“The State, as well as the agencies and utilities tasked with implementation, have expressed concern that they would be required to report such assistance as income to the IRS,” wrote the senators in a letter to IRS Commissioner Charles Rettig. “State utilities have told us that they would not have the logistical capability or required information to process the necessary tax forms and would offer significantly less assistance as a result.”

Notably, other COVID-19 relief programs have included tax liability exemptions, such as those offered for economic impact payments or emergency rental assistance. Many utility assistance programs offered similar relief, traditionally. With that background, the senators sought to establish the same logic that could be applied to this assistance.

“Households already facing the adverse economic impacts of the pandemic should not have to worry whether receiving utility assistance would result in additional tax liability or a decrease in other tax benefits,” the senators said.

The American Rescue Plan offered $350 billion for eligible state, local, territorial and Tribal governments through Coronavirus State and Local Fiscal Recovery Funds to address the COVID-19 emergency and spur economic recovery.