WASHINGTON, D.C. (AP) — The IRS wants its cut from oil spill victims who receive BP payments for lost wages.
Under current law, BP payments for lost wages are taxable — just like the wages would have been, the IRS said in tax guidance issued Friday. Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress? Taxable, though medical expenses related to the emotional distress are deductible.
BP officials have agreed to create a $20 billion fund for spill victims, as well as a $100 million fund to support displaced oil rig workers.
The IRS issued the guidance Friday to help spill victims sort through the law’s complexities. The agency has posted tax information for oil spill victims on its website and plans to hold forums in seven Gulf Coast cities on July 17 to help victims with tax troubles or questions.
The IRS has a number of programs to help people who make a good-faith effort but cannot afford to pay their tax bills. Agents can postpone collections in certain hardship cases or allow delinquent taxpayers to skip installment payments if they have made timely payments in the past.