New Bill Proposal to Exempt the Exonerated Prisoners from Paying Income Tax on Compensation

From NYTimes.com: a bill that would exempt exonerated prisoners from paying federal income taxes on compensation received for a wrongful conviction was introduced by Senator Charles E. Schumer of New York. The measure pushes the issue of taxation to the forefront of the debate over how to compensate the wrongly convicted properly for the years they spent behind bars.

“The criminal justice system is not perfect, so at the very least, we ought to do what we can to make amends to the people who were wrongly convicted — a very small number of people who pay a big, big price for those mistakes,” Mr. Schumer said. “The compensation they receive should not be taxed; that’s certainly like throwing salt on a very deep wound.”

The bill, called the Wrongful Convictions Tax Relief Act, would also exempt exonerated prisoners who do not have prior felony convictions from paying income taxes on up to $50,000 earned each year after their release from prison (or up to $75,000 if they file joint tax returns) and provide them with an income tax credit on payroll taxes paid over the same earnings.

More than 200 people nationwide have been exonerated by DNA evidence since 1989, and more than 400 have been cleared by other types of evidence.

To date, 22 states have passed legislation establishing parameters for financial compensation; three of them — California, Massachusetts and Vermont — have provisions exempting exonerated prisoners from paying state taxes on the money they receive.

But federal laws are unclear as to whether compensation for a wrongful conviction should be considered income and taxed, like punitive damages are, or if it should be treated as a personal-injury award, which is not subjected to taxes, an Internal Revenue Service spokesman said.

Rest of Article. . . [Mark Godsey]