Don't Mess With Taxes

That's a question folks on the Gulf Coast who've already received checks from BP or expect to are asking.

So what's the answer? Yes. Probably. But maybe not. We're waiting to find out.

Depending on who's asked, those are the answers you get.

One tax attorney, however, says the tax situation, unlike the oil-fouled waters off the Gulf Coast, is crystal clear.

"This is not a difficult call," says Tax Lawyer's Blog. "The tax code has long considered payments made to individuals in the form of compensation for lost wages or as a substitute for what would have otherwise been taxable income to be taxable income."

That's the consensus from the professional tax community, although as Fox News reports, it's a big surprise to many who have received payments and spent the money without setting any aside for eventual tax payments.

Special tax treating coming? However, sometimes special tax treatment is provided to folks who've been affected by disasters.

Will that happen here?

Kenneth Feinberg, head of the Independent Claims Facility, said last week that it hasn't been determined if the payouts will be considered taxable income.

So Gulf Coast residents and business owners who've already received BP payouts or will be getting a share of the $20 billion     disaster fund or the $100 million set aside for oil workers who lose their jobs because of the moratorium on deep-water drilling in the Gulf of Mexico must wait for tax instruction.

Politically, it would be tempting for some to have the money from the oil giant be tax free.

Practically, however, the decision could be difficult because of all the revenue the Treasury will lose from those checks.

This isn't a gift from BP or Uncle Sam. It's made to cover money lost because the oil spill meant jobs couldn't be done.

And remember, even unemployment compensation is considered taxable income. Except last year, when the first $2,400 of the government benefit was tax free.

So you see why folks are raising the question.

In the meantime, the best advice for folks getting money in connection with the Deepwater Horizon oil spill is to set aside a portion of that payout to send to the IRS next year. If the tax rules are changed, you can always spend it then.

Related posts:

• Unemployment's terrible tax surprise
• Tax concerns of the unemployed
• Figuring your estimated tax amount
• Talking taxes: Adjusting your withholding
• Energy Star rebates aren't federal income
• Yes to more oil spill trust fund money;
  No to higher oil company taxes