It is only tax free to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
These payments are NOT subject to employment taxes. In Revenue Ruling 2003-12 the IRS has indicated that they won't require individuals to account for actual disaster-related expenses for payments to qualify as qualified disaster relief payments, if the amount of the payments can be reasonably expected to be commensurate with the expenses incurred.
This isn’t just limited to employers, payments can be from any source and be tax free to the recipient.
Wesley Middleton is the managing partner at MRZ LLP, a Houston, Texas-based accounting firm voted Best Place to Work by the Houston Business Journal. Wesley is the author of Violent Leadership (Forbes Books, 2017) and is represented by PumpJack Speakers Bureau. To book Wesley for your event, email Wesley.Middleton@PumpJack.me or click here.