ALTADENA, CALIFORNIA — Thousands of survivors of the 2025 Eaton Fire in Altadena, California, who accepted upfront settlements from the utility accused of causing the blaze face income taxes on those payments unless Congress extends wildfire settlement tax relief. A federal tax exemption on wildfire-related compensation expired at the end of 2025, and settlement payments will be taxed as income absent new legislation.

Survivors who accepted upfront settlements forwent future litigation in exchange for faster payments to help them rebuild or relocate. Southern California Edison and Edison International have acknowledged that their power equipment may have started the Eaton Fire, which destroyed 9,000 structures and killed 19 people. The utility announced a compensation program last year offering fast payments based on the value of losses and an additional premium for not joining litigation, and more than 2,800 households have applied. Thousands of other survivors are joining lawsuits against the utility, and an investigation into the cause of the fire is ongoing.

Taxation of the payments could reduce what survivors receive and potentially disqualify them from other government benefits. One anonymous Altadena homeowner expects a 37% tax on her roughly $700,000 settlement if it counts as income, against an estimated $1 million in construction costs for rebuilding. She, her husband and their four pets spent more than a year living in relatives' houses and rentals after losing their home. "We have to assume we don't have that money, so we're making decisions, choosing cheaper materials, forgoing the solar." "Being taxed would just add more pain and suffering for us, really," she said.

"There was this terrifying disbelief," said Bree Jensen, communications director for the Eaton Fire Long-Term Recovery Group, describing survivors' reaction to learning the payments could be taxed. "There's no way to undo that," said Jennifer Gray Thompson, executive director of After The Fire.

The House Ways and Means Committee last month unanimously approved legislation to exclude payments related to federally declared wildfire disasters from taxable income for losses from 2015 through 2026. The bill would apply to payouts received in 2026 and after and would extend expanded tax relief for property losses from federal disasters through this year. Republican Representative Greg Steube championed the 2024 tax relief bill and introduced its successor with Representatives Doug LaMalfa, Mike Thompson and Jimmy Panetta. "The exact timeline remains uncertain," Steube said. Two similar bills were introduced in the Senate, but no further action has been taken.

"As these disasters come in quick succession, we are going to have to adapt on all levels, and our tax code will have to adapt along with it," Thompson said. "I can't be sure when action will come," she added.

Maui residents await payments from a $4 billion settlement with Hawaiian Electric, and only about 180 homes have been rebuilt in Lahaina out of 2,200 structures destroyed. Most survivors in Superior, Colorado, have rebuilt their homes but remain financially strained due to being underinsured. Survivors can defer taxes or amend past returns, but resolving issues with programs like college financial aid is much harder.