The September 11th Victim Compensation Fund was enacted by the federal government to provide compensation to any individual who was physically injured and to the families and beneficiaries of any individual who was killed as a result of the terrorist-related aircraft crashes of September 11th, 2001. The Victims of Terrorism Tax Relief Act of 2001 provides qualified disaster relief payments to individuals for certain qualified expenses occurring in connection with the terrorist attack such as personal, family, living, or funeral expenses incurred or expenses incurred for the repair or rehabilitation of a personal residence.
For federal income tax purposes, payments from the September 11th Victim Compensation Fund and qualified disaster relief payments are not considered taxable income of the recipient. More specifically, these payments are not included in taxable income, unless the payment is for insurance or other reimbursements for expenses, or income replacement payments, such as payments of lost wages, lost business income.
For New Jersey income tax purposes, qualified disaster relief payments are excludable from income to the extent they are excluded from federal income tax. Any payments that are taxable for federal income tax purposes, such as payments for wages or lost business income, are taxable for New Jersey purposes in the appropriate category of income as well.