MOBILE, Ala. – Gulf Shores Mayor Robert Craft says he’s concerned that people who received oil spill claims payments may not be prepared when the taxman comes calling in April.
The Gulf Coast Claims Facility has paid out more than $2.7 billion to businesses and individuals harmed by the summer’s oil spill, including $523 million in Alabama and $244 million in Mississippi.
BP PLC wrote another $400 million in claims checks when it handled the compensation process.
Nearly all of that money is taxable, but the claims operation did not withhold taxes, as most employers do, leaving the recipient with the responsibility to set aside enough money for state and federal tax bills.
“A lot of money has already been paid out, and a lot of it has probably already been spent,” said Craft, who has been at the front line of the months-long spill cleanup and recovery effort.
“I’m not sure everyone really understood the responsibility that went along with a lump sum. A lot of people have probably never received one,” Craft said.
The claims facility will send out tax forms to check recipients in January, a spokeswoman said. Claims czar Ken Feinberg has repeatedly said that payments would be taxable and that no money would be withheld.
“There are always going to be those that absolutely don’t put any of it away,” said Bert Sanders, an accountant with Gulf Shores-based Grant, Sanders & Taylor PC who has advised dozens of spill claimants. “For a lot of people, it’s already been spent, I’m afraid.”
Claims checks for things like property damage and physical injury are tax-exempt, but so far such damages account for only $2.3 million of the Gulf Coast Claims Facility payout. The vast majority of claims have been for lost earnings, which are taxable.
According to IRS tax tables, someone who earned $50,000 in 2010 would owe about $8,700 in taxes. A $25,000 claim check on top of that would push the total tax up to $15,000, meaning that the recipient would need to put aside more than $6,000 of the claim check.
Craft said that if claims recipients did not set aside any of their checks, “I don’t know how you deal with it this late in the game.”
The IRS is training its employees and volunteers in the Gulf Coast region to deal with unique questions relating to the spill payments, according to IRS spokesman Dan Boone.
The agency also has information for oil spill victims on its website and has a dedicated phone line for the spill, at 1-866-562-5227, Boone said.
For people who have already spent their checks and can’t afford to pay their taxes, the IRS offers installment plans, Boone said. People who owe less than $25,000 in taxes can usually get approved by filling out an extra form, while those with larger debts must go through a more complicated process, he said.
Taxpayers incur extra fees in an installment plan, Boone said.
People suffering financial hardship can also request tax relief by contacting the Taxpayer Advocate Service at 1-877-777-4778, Boone said.
“The IRS believes the systems and policies already in place offer sufficient help to financially struggling taxpayers, no matter what the cause of the struggle,” Boone said.