Are VCF Awards Taxable?

Awards made by the 9/11 Victim Compensation Fund (VCF) are not subject to federal taxes, even any part of a VCF award that is to replace lost earnings or wages. IRS Publication 3920 is clear that any amounts awarded and paid by the VCF are not income subject to taxes: ”Payments from the September 11th Victim Compensation Fund of 2001 are not included in income.”

Disability payments for tax years ending after September 10, 2001 (including Social Security Disability Insurance (SSDI) payments) are not included in income if they are for injuries - a traumatic injury or a 9/11-related disease such as most any cancer –  incurred as a direct result of a terrorist attack, including the September 11th attacks. However, You must, however, include in your income any disability payments you received or you would have received in retirement had you not become disabled as a result of a terrorist attack.

The IRS will also forgive the federal income tax liabilities of decedents who died as a result of wounds or injuries sustained in the September 11th attacks or from illnesses or diseases arising from wounds or injuries, including 9/11-related cancer,  sustained as a result of the attacks. Income tax is forgiven for these decedents whether they were killed in an attack or died later as a result of an attack or participating in rescue or recovery operations. Any forgiven tax liability owed to the IRS will not have to be paid. Any forgiven tax liability that has already been paid will be refunded if a claim is filed within the open refund period.

Understanding the 9/11 Victim Compensation Fund

The terrorist attacks of September 11, 2001, were a tragedy of unprecedented scale, with the World Trade Center (WTC) as the focal point of the devastation. In response, the federal government established the September 11th Victim Compensation Fund (VCF). The VCF offers financial relief to individuals who suffered physical injuries or to the families of those who tragically lost their lives as a direct result of the terrorist attacks. The VCF also extended support to those affected by the debris removal efforts that ensued in the immediate aftermath, specifically people who worked, lived, or went to school in the area south of Canal Street.

Following the creation of the VCF, concerns about the longevity and funding led to the Never Forget the Heroes: James Zadroga, Ray Pfeifer, and Luis Alvarez Permanent Authorization of the September 11th Victim Compensation Fund (VCF) (VCF Permanent Authorization Act), which was signed into law in 2019, ensuring that the VCF remains operational until the year 2090 with sufficient funding and allowing victims of the 9/11 terrorist attacks to apply for compensation, both now and in the future.

Eligibility for VCF Awards

To qualify for a VCF award, claimants are required to meet a set of established eligibility criteria. First, a claimant must have been present in the designated disaster areas between September 11th, 2001, and May 30th, 2002. These areas of presence are not only limited to the immediate crash sites themselves, namely the World Trade Center, the Pentagon, and the field near Shanksville, PA but also cover the broader zones impacted by the toxic cloud of dust that lingered in the air and the debris removal and cleanup operations, known as the Exposure Zone. 

The specified periods of presence take into account both the day of the 9/11 attacks and also the many months afterward during which the debris removal process (through May 30, 2002. This VCF also recognizes that the adverse health effects of the 9/11 attacks were not only immediate but also delayed with many people not getting sick with a 9/11 condition or cancer not until many years or decades later.

Next, to be considered for a VCF award, claimants must have developed a physical health condition (including a 9/11 breathing or respiratory condition or most any type of cancer) as a result of being a first responder or having worked, lived, or went to school in the Disaster Area. Any 9/11 health condition also needs to be “certified” by the WTCHP as 9/11-related. 

Eligibility criteria for a VCF award are detailed and regulated by hundreds of pages of federal regulations and laws. It is therefore important for potential claimants to seek professional legal assistance to navigate this intricate process successfully.

Is Your VCF Award Taxable Income?

A critical aspect of managing VCF awards is understanding their tax implications. According to the Internal Revenue Service (IRS), payments received from the VCF are not included in your gross income for federal income tax purposes. In simple terms, VCF awards will not increase your federal income tax liabilities. This non-taxability is a significant advantage for victims and families who rely on this financial support in the aftermath of the tragedy.

The federal income tax exclusion extends to compensation for physical injuries or physical sickness, and death benefits paid to the survivors. It's worth noting, however, that this tax rule may not necessarily apply to state or local income taxes, as the regulations can differ. Because of these variances, it's highly advisable to consult with a knowledgeable attorney or your tax professional to ensure total compliance with all applicable tax laws.

Protecting Your VCF Award

While VCF awards are not considered taxable income at the federal level, recipients must be mindful of potential tax implications stemming from how they handle or invest these funds. For instance, any income generated from investing your award money could be subject to tax.

Navigate Your VCF Award with a 9/11 Attorney

Navigating the complexities of the VCF, its eligibility criteria, and the associated tax implications can be a daunting task. The services of an experienced 9/11 attorney can be invaluable in this regard. 

At Hansen & Rosasco, LLP, our team is devoted to providing comprehensive, personalized legal services to 9/11 victims and their families. We can help you understand your rights, guide you through the complexities of the VCF, and ensure you receive the full compensation to which you're entitled. 

In the aftermath of the tragic events that unfolded on September 11, 2001, victims and their families should not have to bear the additional burden of navigating the intricacies of VCF awards. We are here to help you navigate this path, allowing you to focus on healing and moving forward in life. We understand the emotional and physical toll of this journey, and we are committed to helping you secure your financial future without additional tax complications. Learn more about how our team can help.