SOURCE:
November 22, 2022
Schumer Reveals That After Pushing For Months, USDA Has Agreed With His Stance That Suffolk’s Septic Improvement Program (SIP) Grants Protect & Restore The Environment & Should Be Excluded From Taxable Income
BUT NOW, The Treasury Department & IRS Have To Agree To Make It Official; LI’ers Who Have Participated Have Owed Money, Been Forced Up Tax Brackets, & Experienced Other Penalties That Have Undermined Suffolk-Administered Effort We Should INCENTIVIZE To Reduce Nitrogen On The Island
Schumer: USDA Has Just Done Right By Suffolk & Now IRS Should Be Next, So Suffolk Enviro Efforts Can Be A Success
Standing alongside Suffolk County Executive Steven Bellone, advocates, and homeowners, U.S. Senator Charles Schumer revealed new progress has been made in the fight to fix the ‘double taxing’ problem plaguing homeowners who participate in the County’s Septic Improvement Program. Schumer announced that the USDA heeded his call and agreed with him and Long Island stakeholders that the grants SHOULD be tax exempt. Schumer, today, is now saying that the IRS must finish the job, also agree and allow the Suffolk environmental efforts to succeed.
“We are here today with some good news: after my pushing, the USDA has informed me that septic grants across Suffolk should be tax exempt. However, we are also here to make a new push to get the IRS to essentially agree and remedy the issue of double taxing and the septic improvement program once and for all,” said U.S. Senator Charles Schumer. “Again, it’s not the septic systems that are clogging up progress here in Suffolk, it’s the federal bureaucracy, and we are here to support homeowners who are doing their part to help reduce nitrogen pollution and prevent them from being ‘double taxed.’ Look, when something is a win for homeowners and Long Island’s environment, the feds should do all they can to make it work, and that is why I am calling on the IRS to do what the USDA just did and green light the SIP’s tax exemption and accept their determination.”
The Suffolk Septic Improvement Program (SIP) replaces outdated and environmentally-damaging residential cesspools and septic systems with nitrogen-reducing ones. The program has attracted rightful interest of homeowners, but now many participating homeowners have faced financial ramifications and others are not participating because of confusion and worry tied directly to their pockets — they’ll likely be taxed for utilizing the grants. A homeowner who received $20,000 in grant funding to upgrade her septic system (to the benefit of Long Island) spoke about her bill and Schumer detailed the latest numbers that show more than—potentially thousands—of other homeowners could benefit if the IRS heeds the call and accepts the USDA determination.
Schumer detailed, as of today, the County has received 3,583 applications and there have been 1,277 installations of Innovative/Alternative Onsite Wastewater Treatment Systems (I/A OWTS). Schumer also explained how, Cindy Krezel, the host of the event today, was pushed into a higher tax bracket because this money was counted as income. She says she received a much lower COVID relief Economic Impact Payment because of this dilemma, too.
Schumer said the County’s Septic Improvement Program has significant environmental benefits and that the IRS had made a bad call when it decided to include homeowner septic grants as income, which Schumer has railed against before. Schumer, today, said there is new hope, however, via a USDA decision. He announced that the USDA just ruled, after his heeding, that these grants and this program is a benefit to the environment, which is both true and helpful because if the IRS agrees, it would mean the grant funds can be excluded from income.
The USDA is now “…providing public notice that the Secretary of Agriculture has determined that cost share payments made by the New York Suffolk County SIP are primarily for the purpose of conserving soil and water resources or protecting and restoring the environment. The Natural Resources Conservation Service (NRCS) was assigned technical and administrative responsibility for reviewing the New York Suffolk County SIP and for making appropriate recommendations for the Secretary's determination of primary purpose. The Secretary's determination permits recipients of cost share payments to exclude such payments from gross income to the extent allowed by the Internal Revenue Service.”
“This is a huge win,” added Schumer. “It shows the squeaky wheel gets the grease, so we are here today with a few more squeaks for the IRS so they can seal the deal for Long Island homeowners, and prevent them from having to dig into their own pockets to do something good and expensive.”
“Our septic improvement program is critical to protecting and improving our water quality on Long Island,” said Suffolk County Executive Steve Bellone. "Today’s announcement is a major win for both Suffolk County taxpayers and our environment. I would like to thank Senator Schumer for his continued efforts to stop the double taxation of our residents, who are doing the right thing for Long Island's water quality."
“The Nature Conservancy commends Majority Leader Schumer for his dedication to bringing clean water back to Long Island. Restoring our bays and harbors requires all levels of government working together for its citizens. We thank Senator Schumer, Secretary Vilsack, and County Executive Bellone for their tireless work to ensure local homeowners are not penalized for replacing a polluting septic system with a clean water system,” said Greg Jacob, The Nature Conservancy’s New York Senior Policy Advisor. “Nitrogen pollution from antiquated septic systems hurts wildlife, closes beaches, and endangers our economy, health, and way of life. Ensuring homeowners do not have to pay taxes on a government grant is a critical step towards a clean water future for Long Island. The Nature Conservancy looks forward to continuing to support and advance these critical conservation investments throughout New York and across the nation.”
“It is imperative that this highly problematic tax issue is resolved expeditiously. This historic grant program was crafted to help hard working homeowners replace aging septic and cesspools with new systems that protect our drinking and coastal water. This program is intended to protect our health, restore our bays and estuaries, and preserve out maritime heritage. Taxing grants that provide critical, meaningful societal benefits creates a substantial obstacle to the success of this program and threatens the very sustainability of Long Island. We are delighted to have Senator Schumer champion this issue and help rectify this detrimental and unwarranted tax,” said Adrienne Esposito, Executive Director of Citizens Campaign for the Environment.
Schumer’s original USDA letter appears below.
Dear Secretary Vilsack,
I write today urging a swift review and approval of Suffolk County’s request for a determination that the County’s Septic Improvement Program’s (SIP) grants are made primarily for the purpose of conserving soil and water resources and protecting or restoring the environment, and thus excluded from a participant’s taxable income.
Suffolk County was rapidly developed as one of the first suburbs in the country after World War II. It is one of New York’s most populous counties and has over 350,000 unsewered homes relying on onsite wastewater disposal systems, including outdated cesspools and septic systems to contain or treat waste. These aging disposal systems discharge high quantities of nitrogen into the surrounding environment, adversely impacting soil health and surface waters. Nitrogen pollution triggers algae growth in Long Island’s ponds and lakes and causes brown, red, and rust tides in its bays and estuaries, killing aquatic life, degrading marshland that protects coastal communities from storm surge, and making local seafood poisonous for human consumption, among myriad other adverse effects. The nitrogen discharge is also concerning because the majority of Suffolk’s population is entirely dependent on Long Island’s underlying sole-source aquifer system.
In 2017, Suffolk County developed the landmark and award-winning Septic Improvement Program (SIP) to encourage residents to upgrade their wastewater disposal systems in an effort to reduce nitrogen pollution. The program provides grants to homeowners who choose to replace outdated cesspools and septic systems with new state-of-the-art nitrogen-reducing technology. To streamline participation, grants are disbursed directly to installation contractors who pay taxes on the funds as business income. Homeowners participating in the program never receive grant funds. Even so, the Internal Revenue Service (IRS) currently considers the grants taxable income, increasing participating homeowners’ tax liability. Some participating homeowners saw their income taxes increase by as much as $8,000, while many others chose not to participate in the SIP program due to potential tax liability. In addition, homeowners have experienced negative impacts due to increased tax liability, including being forced into higher tax brackets, making Social Security benefits taxable, jeopardizing senior citizen property tax exemptions, reducing college financial aid amounts for children of grant recipients, and increasing family health insurance premiums. Needless to say, the success of this critical environmental improvement program, and the livelihoods of current and future participants, are being hampered by the undue tax liability.
Section 126 of the Internal Revenue Code of 1954, as amended (26 U.S.C. Section 126), provides that certain payments made to persons under conservation programs may be excluded from the recipient’s gross income for Federal income tax purposes, in part, through a determination by the Secretary of Agriculture. In 2021 Suffolk County began engaging with USDA requesting such a determination. It is my belief that the SIP meets the natural resource conservation purposes outlined in the Section 126 criteria for income tax exemptions. It is also my understanding that the State Conservationist in the Natural Resources Conservation Service’s (NRCS) New York office wrote to USDA headquarters laying out his opinion that the SIP “meets the three applicable criteria for exemption of federal taxation.” I hope that Suffolk County’s request for a positive determination can be swiftly approved.
I look forward to working with you to further protect New York’s soil and water resources, overall environment, and public health, and appreciate your attention to this important matter.
Sincerely,
U.S. Senator Charles Schumer