Posted: 3/17/2005

House Committee Approves Bill to Exclude Flood Insurance Money from Consideration as Income

The House Financial Services Committee Wednesday approved a bill that would prevent federal flood insurance money from being considered income. The bill (H.R. 804), sponsored by Rep. Richard Baker, R-La., passed on a voice vote.

Under the legislation, people who receive flood insurance payments from the federal government would not have to count as part of their income when applying for food stamps, Medicaid and other federal programs.

Committee Chairman Michael Oxley, R-Ohio, called the bill, "common sense, compassionate, bipartisan legislation."

"NAMIC is pleased that the House Financial Services Committee passed this important piece of legislation," said NAMIC Federal Affairs Director Marliss Browder. "The money received by the National Flood Insurance Program is designed to help those in need of assistance and not to punish them."

An IRS ruling in July 2004 stated that flood mitigation grants must be reported as income for tax purposes.

This ruling has caused significant uncertainty in the administration of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004. Anecdotal information has revealed that a significant number of homeowners have refused mitigation offers not only due to the fear of a potential tax liability, but also the potential for other unknown liabilities imposed by other federal government agencies.

These penalties could include the loss of certain federal education, nutrition and health care benefits.

H.R. 804 eliminates the potential for additional penalties by preventing federal government agencies (other than the IRS) from considering National Flood Insurance Program (NFIP) flood mitigation grants as income.

The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 enacted reforms that deal with repetitive loss properties and flood mitigation.

The Federal Emergency Management Association, which administers the NFIP, has found that repetitive loss properties alone incur $200 million in losses annually. Repetitive loss properties are exhausting the NFIP and subverting the original intent of the program.

The House Ways and Means Committee is considering a companion bill that would prohibit the federal government for taxing flood insurance.

House Committee on Financial Services news release, NAMIC staff