Red Hill families forced to stay in hotels amid tainted water crisis hit with huge tax bills

The families are finding out the reimbursements from the military are considered income.
Published: Feb. 15, 2023 at 5:41 PM HST|Updated: Feb. 15, 2023 at 5:47 PM HST
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HONOLULU (HawaiiNewsNow) - Some Red Hill families who were forced to live in hotels for months because of the Navy’s tainted tap water are now getting hit with huge tax bills, Hawaii News Now has confirmed.

The families are finding out the reimbursements from the military are considered income.

And many are panicking.

Navy retiree and Joint Base Pearl Harbor-Hickam resident Carolina Alama and her family lived at the Sheraton Hotel and Resort in Waikiki for four months in early 2022 when they couldn’t drink the fuel-tainted tap water.

Her family’s hotel expenses were reimbursed by the Navy, but then she got a 1099 tax form from the Defense Finance and Accounting Service showing $22,000 in extra income.

Her professional tax advisor says she’ll have to pay $6,500 in federal and state taxes.

“It’s upsetting that they continue to fail us considering that we served for them,” said Alama.

“At no point did they tell us it was going to be taxable income,” she added.

Kat McClanahan, who got sick after drinking the tainted water, is showing an extra $23,000 in her 1099 tax form after getting reimbursed for expenses.

She estimates she’ll have to pay $3,400 in taxes.

“We are not even done paying on medical bills and now we are going to start paying being taxed on something that was forced on us by the Navy’s mistake,” she said.

Sam Erwin, manager at Hanks Tax Service, said “other income” listed in a 1099 form is taxable.

Most of his clients with this issue live in Kapilina Beach Homes, where many civilian families live. He’s advising people to wait before filing until there are some definitive answers.

“If you file it on your taxes and you put it on there, that it is taxable,” he said.

“You are going to have a harder time taking it off.”

Gary Yamashiroya, of the Department of Taxation, deferred comment to the federal government.

“At this time we defer to the Defense Finance and Accounting Service as to their reasoning for the issuance of the 1099-MISC and their determination that the payment is considered taxable income,” he said.

Navy Region Hawaii told Hawaii News Now it reached out to the command on the mainland that manages this issue and hopes to have more information on Friday.