Private well users were reimbursed by the state for PFAS remediation. Then they were taxed on it.
Hundreds of private well users have been reimbursed by the state after spending their own dollars to remediate PFAS contamination. But when tax season rolled around this year, they were mailed 1099 forms, telling them the money they received is considered federal taxable income.
The tax forms caused widespread confusion. Laurene Allen, a co-founder of Merrimack Citizens for Clean Water who serves on the state PFAS Commission, said people were “definitely being blindsided” because they weren’t informed during the process about the possibility of the rebates being taxable.
“The concept of receiving taxpayers’ dollars to pay for what we did not cause,” Allen said, “is simply wrong.”
Since New Hampshire launched its PFAS Rebate Program last July, 500 rebates have been issued to people with contaminated wells who either installed a treatment system or connected to public water, according to the Department of Environmental Services. When the 1099 forms were mailed to rebate recipients, many balked at the idea of reimbursed remediation funds as “income,” particularly because they’d initially paid out of their own pockets for contamination they didn’t cause.
A 1099 tax form is typically sent to individuals who received money from an entity that isn’t their employer. In this case, the state sent 1099-G forms to those who received PFAS rebates, categorizing them as “state grants” that need to be reported to the Internal Revenue Service, and possibly on a tax return.
State officials say they’re required to issue 1099 forms under federal law and that they’ve been clear in communicating that. But as rebate recipients seek further guidance, they say the state isn’t giving clear direction on what exactly to do with the 1099 “income.”
Michael Strand, a Bedford resident and citizen representative on the state PFAS Commission, called it “unacceptable” that individuals impacted by PFAS continue ending up with liability for contamination the state has attributed to a private company – “even if it’s only taxable liability (in this case).”
Saint-Gobain Performance Plastics reached an agreement with the state last year to permanently provide safe drinking water to more than 1,000 properties in five towns. Those utilizing the rebate program are not located in geographic areas agreed upon by the consent decree, and critics have argued the omission means the agreement doesn’t fully address the scope of PFAS contamination attributed, though not legally, to Saint-Gobain.
What is the PFAS Rebate Program?
The PFAS Rebate Program is funded by settlement money and New Hampshire taxes: $5 million from the Drinking Water and Groundwater Trust Fund, which was established using damages awarded to the state through its 2003 lawsuit against ExxonMobil, and $15 million in general funds appropriated by the state Legislature.
Jim Martin, spokesman for the Department of Environmental Services, said it may be the only program of its kind in the country helping private well users with PFAS contamination.
The program provides one-time rebates for up to $5,000 for the installation of PFAS treatment or up to $10,000 for a service connection to a public water system. Treatment installations that took place after Sept. 30, 2019, are eligible for the program.
As of May 2022, DES said as many as 2,000 private contaminated wells remained that hadn’t been provided alternative water from a third party, giving an estimate as to how many people could possibly take advantage of the rebate program. Martin noted this number could increase substantially if the Environmental Protection Agency adopts its proposed federal PFAS regulations.
Data provided by DES shows 500 rebate applications have been approved and paid since the program launched last year, totaling $1,686,650 in reimbursements to private well users.
Rebates as ‘taxable grants’
Recipients say state agencies have not been clear about the tax implications. IRS guidance on 1099-G forms states, “State and local grants are ordinarily taxable for federal income purposes.” However, individuals might find themselves in different situations based on their tax bracket or deductions that may offset the 1099 income.
DES did not post public guidance on its website until after receiving several inquiries by the New Hampshire Bulletin that went unanswered starting March 9. The guidance that was posted, on March 16, was from the Department of Administrative Services, telling people the state does not issue tax advice and that they should consult with their own tax advisers.
“The Information Return is required to be filed with the IRS, however, the State of New Hampshire advises individuals to seek advice from a tax adviser to determine if the income received from the State is taxable to the recipient,” DAS wrote.
In a coinciding statement, DES said it understands the concern and confusion around “the tax liabilities that payments under the Program may pose,” but stated the department is “not in a position to provide any advice or guidance to individual taxpayers relative to their personal tax situation.”
DES directed people to the DAS bulletin, recommending they seek advice from a tax adviser “to determine if this income is taxable to you.”
Asked further why DAS isn’t able to provide more clarity to residents, state comptroller Dana Call said the office issues 1099 forms for rebates every year, including solar grants and COVID-19 grant funding.
“The PFAS program is no different and requires the State to send an information return to the recipient and the IRS,” she said. “Beyond that, the State does not give tax advice to recipients; we recommend they consult with a tax preparer in completing their individual tax return.”
Call continued, “We believe we have been clear that it is reportable income.”
Any changes may require federal intervention
Bedford’s Strand said he was advised the issue would have to be solved at the federal level via a change to the IRS tax code. Ideally, he said, a retroactive refund would be issued “if proper legislation or executive action looks to remediate” it.
Some serving on the PFAS Commission believe the rebates should have been treated like an insurance casualty claim, Strand said. He recently raised the issue with the state’s federal delegation.
“It obviously wasn’t well thought out, or well enough,” he said.