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Garamendi, Thompson, CA Delegation Urge IRS Not to Tax Federal Utility Bill Assistance for Low-income Residents

WASHINGTON, DC—Today, Congressman John Garamendi (D-CA) and Congressman Mike Thompson (D-CA) led 21 members of the California Congressional delegation in sending a letter to the Internal Revenue Service (IRS) urging them to not tax utility bill assistance Americans received through the American Rescue Plan Act of 2021 (P.L. 117-2). The letter is linked here and included below.

The American Rescue Plan Act of 2021 was passed by the House of Representatives a week into President Biden’s term and provided a landmark $1.9 trillion in relief for Americans during the COVID-19 pandemic. In addition to providing direct stimulus payments to Americans and lifting millions of children out of poverty with the expanded Child Tax Credit, the American Rescue Plan Act also included over $350 billion to state and local governments to respond to the COVID crisis. The State of California used nearly $2 billion of its allotment to provide critical financial assistance to low-income households struggling to pay their water bills. Now, those same households are concerned that the assistance they received might be considered as taxable income.

“The IRS must provide guidance to prevent unnecessary tax burdens for many Californians in need as we recover from the economic impact of the COVID-19 pandemic. 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. We ask that the IRS work swiftly to provide clarity to those carrying out and receiving assistance through these programs,” the signatories said in the letter.

Text of the letter to the IRS is included here:

The Honorable Charles P. Rettig

Commissioner

Internal Revenue Service

1111 Constitution Avenue, NW

Washington, DC 20224

Dear Commissioner Rettig:

We write to express concerns about the potential tax implications of the provision of utility assistance to Californians through the American Rescue Plan Act’s Coronavirus State and Local Fiscal Recovery Funds. We request that you provide guidance to prevent unnecessary tax burdens for many Californians in need as we recover from the economic impact of the COVID-19 pandemic.

Many states and local governments have expressed interest in issuing utility assistance to households or populations facing negative economic impacts due to COVID-19, in accordance with the Department’s interim final rule. California is using a portion of its $27 billion allocation to provide $993.5 million in assistance for electric and natural gas customers under the California Arrearage Payment Program and $985 million in assistance for water and wastewater customers under the California Water and Wastewater Arrearage Payment Program. Both programs will assist residential and commercial customers.

However, 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 Internal Revenue Service (IRS). We believe that taxing utility assistance provided through fiscal recovery funds would be inconsistent with the exemption of tax liability under other COVID-19 relief programs like economic impact payments and emergency rental assistance, as well as other long-standing utility assistance programs.

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. Additionally, without immediate action, the provision of such assistance to those most in need could be delayed unnecessarily as agencies manage these tax implications.

We appreciate the IRS’s attention to this matter and ask that you work swiftly to provide clarity to those carrying out and receiving assistance through these programs. Thank you for your continued partnership in supporting a strong, equitable economic recovery.

Sincerely,

JOHN GARAMENDI

Member of Congress

MIKE THOMPSON

Member of Congress

NANETTE DIAZ BARRAGÁN

Member of Congress

PETE AGUILAR

Member of Congress

JULIA BROWNLEY

Member of Congress

JUDY CHU

Member of Congress

JIM COSTA

Member of Congress

MARK DESAULNIER

Member of Congress

ANNA G. ESHOO

Member of Congress

JIMMY GOMEZ

Member of Congress

JARED HUFFMAN

Member of Congress

RO KHANNA

Member of Congress

BARBARA LEE

Member of Congress

TED W. LIEU

Member of Congress

ALAN S. LOWENTHAL

Member of Congress

JERRY MCNERNEY

Member of Congress

JIMMY PANETTA

Member of Congress

LUCILLE ROYBAL-ALLARD

Member of Congress

ADAM B. SCHIFF

Member of Congress

ERIC SWALWELL

Member of Congress

NORMA J. TORRES

Member of Congress

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