New Bill Would Block Tax on Septic Grants

Suffolk County residents who joined a three-year-old pilot project to use a $10,000 county grant to install new nitrogen-reducing septic systems have been struck by a surprise income tax hit, after Suffolk County Comptroller John Kennedy urged the IRS last year to declare the grant taxable income.

In January 2020, the IRS ruled that these grants would be taxable to the homeowner as gross taxable income. 

This week, East End Congressman Lee Zeldin, member of the House Financial Services Committee, joined Congressman Tom Suozzi of Congressional District 3 in championing new legislation that would undo that IRS ruling.

The bill, HR 7280, was introduced June 18 and is currently before the House Ways & Means Committee.

The bill would exclude the subsidy from gross income going forward, and would retroactively allow subsidy recipients to amend their 2019 tax returns for grants received in 2019.

“When it comes to hardworking Long Islanders’ taxes, there has been too much shooting from the hip. We must protect these taxpayers, and this complex issue requires an effective solution,” said Mr. Zeldin Monday. “This program’s goals are laudable, but we must ensure people can actually use the program to achieve those goals. While all levels of government work to find a solution, due to the urgency of this situation, we are running the gamut on every option, including this legislation to provide immediate relief.”

Suffolk County Executive Steve Bellone applauded the legislation on Tuesday.

“We’ve been exploring every available way to fight this decision,” he said. “It has dire implications for clean water programs across the county and individuals’ participation in the programs.

“Scientists have warned this region’s reliance on primitive wastewater disposal systems has degraded our water quality and continues to be a mounting threat,” he added. “Suffolk County residents care about clean water and these individuals in this program should not be liable to pay taxes on grant money that never even touches their hands.”

“I’me grateful to our congressional delegation for joining our efforts to reverse this decision so we can protect our taxpayers and advance our efforts to protect water quality,” he added.

More information on the county’s Septic Improvement Program is online here. Southampton and East Hampton towns are also issuing their own septic improvement grants using Community Preservation Fund money earmarked for water quality improvements.