Update: Taxability of Incentives
The following serves as an update on the position of the Town of East Hampton regarding the taxability of grants and incentives to upgrade septic systems to innovative/alternative treatment systems.
On December 2, 2022, the Internal Revenue Service issued Announcement 2022-26 providing an update on the taxability of grants. The Announcement 2022-26 can be found at the following website: https://www.irs.gov/pub/irs-drop/a-22-26.pdf. Taxpayers should be informed that pursuant to the Announcement, IRS has determined that payments made by Suffolk County under the Septic Improvement Program are not to be included in the grant awardee’s gross income.
In light of this ruling, the Town of East Hampton will no longer be issuing 1099’s to homeowner’s who received a septic rebate from the Town or utilized direct payment of their incentive to their chosen approved vendor under the Town’s Septic Incentive Program.
Awardees who may have already reported the incentive payments as gross income on their 2019, 2020 or 2021 Federal income tax return may file an amended return with Form 1040 X for the year(s) in which they reported the income and decrease their adjusted gross income by the appropriate amount or consult your tax advisor. The Explanation of Changes on Form 1040-X should refer to “Announcement 2022-26.” Form 1040 X can be found at the following website: https://www.irs.gov/forms-pubs/about-form-1040x. The Town will not be issuing revised 1099’s.
The IRS’s announcement comes after the Natural Resources Conservation Service of the U.S. Department of Agriculture provided public notice on November 16, 2022 that in response to a request filed by the Suffolk County Commissioner of Health, the Secretary of Agriculture issued a determination that payments under the SIP Program are primarily for the purpose of conserving soil and water resources and protecting or restoring the environment, therefore meeting the requirements of § 126(b)(1)(A) of the Internal Revenue Code to be excluded. See Determination of the Primary Purpose of the New York Suffolk County Septic Improvement Program (SIP), 87 FR 68669 (Nov. 16, 2022).
Please reach out to the Town of East Hampton’s Natural Resources Department staff with any questions or concerns at firstname.lastname@example.org or 631-324-0496.