Civilian Red Hill families plead for relief after being hit with huge tax bills for reimbursements

HONOLULU (HawaiiNewsNow) - Civilian Red Hill families are furious about getting huge tax bills after getting reimbursed by the Navy for staying in hotels for months.

It’s a story Hawaii News Now first reported.

And now HNN is getting more answers from the Pentagon ― answers those families aren’t happy about.

Navy retiree and Hickam resident Carolina Alama lived in a Waikiki hotel for four months when residents couldn’t drink the Navy’s fuel-tainted tap water from December 2021 to March 2022.

The Navy reimbursed the hotel bills, but then she got a 1099 tax form showing $22,000 in extra income.

That “extra income” ― for hotel reimbursements ― means she’ll have to pay $6,500 in federal and state taxes.

“The government failed us once, twice, and now once again,” said Alama.

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The Department of Defense told Hawaii News Now that payments were made to service members, civilian employees, dependents and others. Most payments were non-taxable, but others were not.

“This Emergency and Extraordinary Expense authority allowed payments to individuals who were affected by the water contamination but not eligible for relief under any other authorities,” said Chris Sherwood, Department of Defense spokesperson.

“Consistent with long-established practice, these individuals were issued IRS 1099 forms, indicating that the reimbursements made with “EEE” authority and funding were taxable income.”

Residents say they were never told the relief payments would be taxable.

The Department of Defense says it’s consulting with the Treasury Department to determine next steps.

“I really was appalled because the way I read it. It did seem like service members were receiving nontaxable funds while civilians were receiving these taxable funds,” said Sam Erwin, manager at Hanks Tax Service.

Erwin says if Red Hill families got a 1099-MISC form, the most important thing to do is not ignore it.

You can file for a six-month extension and there could be a way to reduce the tax bill.

“There is a provision under the state side that the federal doesn’t have. It’s called Casualties and Theft,” said Erwin.

“It allows you to reduce your income for the amount of the loss,” he added.

Another civilian Red Hill family member contacted Congressman Ed Case.

He wrote in a letter that “I do not agree that this emergency support should be classified as ‘compensation’ and result in an unexpected tax bill.”

U.S. Sen. Mazie Hirono told HNN: “I’m pushing DOD and the IRS to take necessary action to ensure no one is forced to pay taxes on these relief payments.”

Alama says she’ll file an extension.

Adding salt to the financial wound, she still paid $3,000 per month rent at Hickam during the tainted water disaster at the same time as paying four months of hotel bills.

It also took months for the military reimbursements to come in.

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