Bills and Rates

Lawmakers Seek IRS Guidance On Taxation Of Utility Assistance Under American Rescue Plan

Members of the California delegation in the U.S. House and Senate recently asked Internal Revenue Service (IRS) Commissioner Charles Rettig to provide guidance that recipients of residential utility assistance funded through the Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) will not need to report it as income.

The Treasury Department has issued similar guidance relating to the emergency rental assistance program, but has not yet done so for CSLFRF, which was funded under the American Rescue Plan Act.

“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,” the lawmakers said in their letter.

They noted that 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 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,” the lawmakers said in their letter.

“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,” the letter.

The letter was signed by 21 members from the House and both of California’s senators. Signatories to the letter include members on both the House Committee on Ways and Means, which has jurisdiction over the IRS, and the House Committee on Oversight and Reform, which has oversight of the CSLFRF.

The letter follows a similar request sent in September 2021 by 18 associations, including the American Public Power Association and the California Municipal Utilities Association. Other organizations joining in signing the letter represent water, gas, and electric utilities, consumer groups, energy assistance groups, cities, counties and state and local financial officers.