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Thousands of survivors of the 2025 Eaton Fire<\/a> in Altadena, California, have elected to accept an upfront settlement from the utility accused of causing it, forgoing future litigation for a faster payment that could help them rebuild or relocate.<\/p>\n But unless a bill moving through Congress becomes law, that money could be taxed as income, taking big bites out of their payments and possibly disqualifying them from other government benefits. <\/p>\n \u201cThere was this terrifying disbelief,\u201d Bree Jensen, communications director for the Eaton Fire Long-Term Recovery Group, said of informing fellow residents about the tax.<\/p>\n Thousands more who are suing the utility face the same prospect, as well as fire survivors in Colorado<\/a>, Hawaii<\/a> and Oregon<\/a> after a tax exemption on wildfire-related compensation expired at the end of 2025. <\/p>\n In recent years, Congress has shielded wildfire settlements from taxes, but legislation to do so was short-lived and a struggle to pass, leaving gaps between laws that risk saddling some survivors with a possible tax burden on their compensation. A bipartisan House bill to extend the tax relief passed out of committee last month, but the timeline for bringing it to a floor vote and when the Senate will take action are unknown, leaving survivors in financial limbo. <\/p>\n \u201cWe have to assume we don\u2019t have that money, so we\u2019re making decisions, choosing cheaper materials, forgoing the solar,\u201d said one Altadena homeowner, who spoke on the condition of anonymity because she fears compromising her expected settlement of about $700,000. If that money counts as income, she expects taxes would take 37%.<\/p>\n The homeowner hoped accepting a settlement would get her family home faster, after she, her husband and their four pets spent more than a year hopping between relatives’ houses and rentals.<\/p>\n \u201cAll we wanted was to rebuild a comfortable house and get out of the situation we were in,\u201d she said, adding their construction costs alone are estimated to reach $1 million. <\/p>\n As survivors watch lawmakers lock horns over the Iran war<\/a> and the record-long Department of Homeland Security shutdown<\/a>, some worry extending disaster tax relief will be de-prioritized.<\/p>\n \u201cPeople have low expectations of anything actually getting done,\u201d said Jenn Kaaoush, a 2021 Marshall Fire survivor and town council member in Superior, Colorado. <\/p>\n Utility equipment is believed to have sparked some of the deadliest and most destructive fires in recent years. Multibillion-dollar settlements<\/a> have become common after these fires but take years to resolve. <\/p>\n As construction costs soar and insurance becomes more expensive and difficult to secure, compensation from lawsuits has become a critical component of how many households start over.<\/p>\n \u201cIt\u2019s the difference between towns getting rebuilt and not getting rebuilt, quite frankly,\u201d said attorney Doug Boxer, who has represented more than 17,000 Californians in cases against utilities and is part of the LA Fire Justice coalition suing Southern California Edison and its parent company, Edison International, on behalf of more than 2,000 clients.<\/p>\n SCE and Edison International have acknowledged their power equipment may have sparked the Eaton Fire<\/a>, which destroyed 9,000 structures and killed 19 people. The utility last year announced a compensation program for those impacted, promising fast payments based on the value of one\u2019s losses, as well as an additional premium for not joining litigation against the utility. <\/p>\n More than 2,800 households have applied for the compensation program. Thousands more are joining lawsuits against the utility. An investigation into the Eaton Fire’s cause is ongoing. <\/p>\n Households can\u2019t afford to lose a chunk of their payments to taxes, said Jensen, whose home also burned. \u201cIt sounds like a lot of money, but not in regards to how expensive it is to actually build in the community.\u201d<\/p>\n Payments related to federally declared wildfire disasters from 2015 through 2026 would not count toward taxable income, according to legislation approved unanimously<\/a> by the House Ways and Means Committee last month. That would apply to payouts received in 2026 and after.<\/p>\n The measure would extend expanded tax relief for property losses from federal disasters through this year, a provision that helped attract bipartisan support from lawmakers representing states vulnerable to hurricanes and other extreme weather.<\/p>\n