Disaster Tax Relief: Your Guide to Minimizing Penalties and Interest After a Catastrophe

If you’re dealing with the aftermath of a natural disaster—like the wildfires that struck Los Angeles County on January 7, 2025—you’ve likely come across announcements about “disaster tax relief.” Both the IRS and state tax agencies such as the California Franchise Tax Board (FTB) often extend key filing and payment deadlines to help you during these challenging times.

In the wake of the LA County fires, the IRS and FTB postponed many deadlines originally falling between January 7, 2025 and October 15, 2025 to a new deadline of October 15, 2025. If you qualify, you have extra time to file individual or business returns and make several quarterly estimated tax payments—like the one usually due on January 15, 2025. By meeting these postponed deadlines, you generally won’t face penalties for late filing or payment.

How Disaster Tax Relief Helps You?

You’ll find that the extension of deadlines, plus penalty waivers for certain due dates, can significantly reduce your stress. Here’s a quick overview of the primary benefits that may apply to your situation:

• Extended Due Dates: All tax deadlines that fall within the identified disaster window are moved to October 15, 2025. This applies to both federal and California state returns.
• Automatic Penalty Waivers (for Postponed Deadlines): As long as you file and pay by the new due date, you usually avoid late-filing and late-payment penalties for the impacted periods.
• Peace of Mind for Q4 Estimated Taxes: If you’re required to make a quarterly estimated tax payment on January 15, 2025, you now have until October 15, 2025, without incurring an estimated tax penalty for that quarter.

The Big Question: What About Pre-Existing Debts?

If you had unpaid taxes before the disaster struck (such as missing or underpaid estimated taxes for earlier quarters of 2024), you’re probably wondering if “disaster tax relief” stops interest and penalties already in motion. Unfortunately, the answer isn’t always straightforward—especially when you compare federal (IRS) rules to California’s (FTB) approach.

Federal IRS Rules: Interest and Penalties Keep Ticking

You can benefit from extra time to file and pay for deadlines within the disaster period, but what if you already owed money before January 7, 2025? You’ll want to understand how the IRS handles interest and penalties that began accruing before the official disaster declaration date:

1. Interest on Underpayments
   The IRS charges interest on unpaid tax from the original due date until the balance is settled, and disaster tax relief does not stop this clock for past-due debts. (References: [11, 12, 13, 14, 15, 16])
2. Penalties (Including Estimated Tax)
   • Pre-Disaster Underpayments: If you missed quarterly estimates (Q1–Q3 of 2024), those penalties generally keep accruing.
   • Post-Disaster Extensions: The new October 15, 2025, deadline does shield you from penalties for obligations originally due during the disaster window (like the January 15, 2025, payment). (References: [3, 10, 15, 17, 18, 19])
3. Reasonable Cause Waivers
   You still have the option to request a separate penalty abatement if a disaster legitimately prevented you from addressing your overdue payments. However, it’s not automatic; you’ll need to show reasonable cause and supporting evidence.

California FTB Rules: Ambiguity for Interest, But Similar Penalty Rules

California generally follows the IRS in granting extra time for filing and payment, yet you may notice some differences. If you’re wondering about how the FTB handles interest on pre-existing underpayments, here’s what you need to know:

1. Interest May Continue
   FTB publications sometimes suggest interest might be suspended during the postponement period, but there’s no clear confirmation that this suspension applies to pre-disaster interest. (References: [20, 6])
2. Penalties Within the Disaster Period
   Similar to the IRS, the FTB automatically waives penalties for deadlines that fall inside the disaster window, provided you meet the new deadlines. Pre-disaster penalties aren’t automatically forgiven. (References: [6, 21, 22])
3. Verify Directly with FTB
   Because guidance can be vague, it’s best to confirm details directly with the FTB if you owe significant amounts from before January 7, 2025.

A Quick Example to Show the Impact

Sometimes, a real-world scenario helps clarify the rules. If you meet the criteria below, this example will show how estimated taxes, penalties, and interest can add up—especially when you had obligations before the disaster:

1. Hypothetical Situation
   • 2023 Tax Liability: $100,000 (AGI > $150,000)
   • 2024 Tax Liability: $100,000
   • 2024 Estimated Payments: $0 (no withholdings or estimates made)
   • Full Payment Made: October 15, 2025
2. Safe Harbor Thresholds
   • IRS: Must pay 90% of 2024 tax ($90,000) or 110% of the 2023 liability ($110,000) if AGI exceeded $150,000.
   • FTB: Uses a different percentage schedule (30%, 40%, 0%, 30% for each quarter).
3. Penalties for Missed Q1–Q3 2024
   Because these payments were due before January 7, 2025, penalties and interest continue accruing from the original 2024 due dates until your payment date.
4. Q4 2024 Deadline (January 15, 2025)
   This deadline falls within the disaster period, so it’s postponed to October 15, 2025. Paying by the new date avoids a penalty for Q4.

Your Action Plan: Make the Most of Disaster Tax Relief

Even though you have extra time to file and pay for certain deadlines, it’s crucial to know how to minimize penalties and interest on older debts. Consider these steps as you navigate your tax obligations:

• Prioritize Payments
  You want to pay any outstanding tax as soon as you can—even if your filing deadline is extended—to prevent more interest and penalties from racking up.
• Don’t Assume Automatic Relief for Past Debts
  If your liability existed before January 7, 2025, the relief doesn’t automatically wipe out accumulating interest or penalties from earlier quarters.
• Consider Reasonable Cause Requests
  If the disaster directly prevented you from addressing your unpaid balance, a penalty abatement might be an option. Be prepared to explain and document your circumstances.
• Check California FTB Guidance
  With FTB rules sometimes lacking clarity on pre-existing interest, it’s smart to confirm your situation directly if you have a large outstanding balance.
• Consult Your CPA
  Every taxpayer’s situation is unique. A trusted CPA can guide you through both federal and state rules, ensuring you utilize every relief option available.

Final Thoughts

Disaster tax relief can ease some of your burdens if you’re recovering from events like the LA County wildfires. However, if you already had unpaid taxes before January 7, 2025, be aware that interest and penalties likely did not pause. By staying proactive—paying balances early, seeking penalty waivers if appropriate, and consulting your tax professional—you’ll be in the best position to minimize extra costs and stress.

When in doubt, rely on up-to-date IRS and FTB guidance, and don’t hesitate to reach out to a qualified professional for personalized advice. You deserve every benefit that disaster tax relief offers, but clarity ensures you’re not hit with unwelcome surprises later.

Need Help Navigating Disaster Tax Relief?

At G&S Accountancy, we specialize in helping individuals and businesses recover financially after disasters. From understanding your extended deadlines to minimizing penalties and interest, we’ll guide you through every step with clarity and confidence.

📞 Contact us today to schedule a free consultation and take control of your tax situation before the next deadline hits.

Frequently Asked Questions (FAQs)

Does disaster tax relief forgive my tax debt completely?

No. Disaster tax relief typically postpones filing and payment deadlines and may waive penalties for missed deadlines within the disaster period. However, it does not cancel your existing tax debt or accrued interest from prior periods.

Will the IRS or FTB stop charging interest on unpaid taxes during a disaster?

Not in most cases. The IRS continues to charge interest on any unpaid tax that was due before the disaster. The FTB’s position is more ambiguous, but it’s safest to assume that interest continues unless stated otherwise.

Do I need to apply for disaster tax relief, or is it automatic?

If your address is within a federally declared disaster zone, the IRS and FTB typically apply disaster relief automatically. However, if you’re affected but not in the designated zone, you may need to call and request relief manually.

Can I get penalties waived for tax underpayments before the disaster?

Possibly, but not automatically. You can request a waiver based on reasonable cause if the disaster affected your ability to pay. Documentation may be required to support your claim.

How can G&S Accountancy help me with disaster tax relief?

Our team at G&S Accountancy helps individuals and businesses understand what relief applies, calculate potential penalties or interest, and submit proper documentation for abatements if needed. We offer personalized guidance to help you stay compliant and stress-free.