Is My VCF Award Taxable in 2026?

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The Short Answer on Federal Tax

If you received, or are about to receive, a payment from the 9/11 Victim Compensation Fund (VCF), the most common question is simple: "Do I owe taxes on this?"

For federal income tax, the answer is generally straightforward. IRS Publication 3920 states plainly that payments from the September 11th Victim Compensation Fund of 2001 are not included in income. The exclusion is codified at IRC §139(f), which points back to the Air Transportation Safety and System Stabilization Act that created the Fund.

That treatment generally reaches the award itself, whichever components make it up:

• Economic loss (lost earnings and benefits, replacement services, out-of-pocket costs): generally not included in income
• Non-economic loss (pain and suffering): generally not included in income
• Awards paid to survivors on a deceased victim's claim: generally not included in income

It does not depend on the size of the award. What it does depend on is that the payment is actually a VCF payment, which is why the next section matters: a different 9/11 fund follows a different rule.

New York Does Not Tax It Either

This is the part that gets skipped, and for most 9/11 families it is the half that actually applies to them, because most of them file a New York return.

A federal exclusion does not automatically settle your state tax. New York answers this question in its own publication rather than by silence. NYS Publication 59 states that payments made to survivors from the September 11th Victim Compensation Fund of 2001 are not included in New York adjusted gross income, and that New York follows the federal income tax treatment to exclude these items from income.

If you are a nonresident or part-year resident, Publication 59 says the same items are excluded when computing your New York adjusted gross income, your New York tax as if you were a resident for the whole year, and your New York source income.

What About USVSST Distributions?

Distributions from the United States Victims of State Sponsored Terrorism (USVSST) Fund are treated differently from VCF awards. The USVSST Fund is a separate program that IRS Publication 3920 and IRC §139 do not address, and the Fund issues no Form 1099.

For a 9/11 family, the portion of a USVSST award that compensates for physical injury or death is generally excludable under IRC §104(a)(2), while portions like punitive damages or interest are generally taxable. If you are receiving both VCF and USVSST payments, they do not follow the same rule, so have your tax professional review the specifics of each.

"Your VCF award is generally free from federal income tax. Your USVSST distribution depends on what it is compensating, so check it with your tax professional. And the moment you invest either one, the earnings become taxable. That's where planning matters."

The Award Is Excluded. The Growth Is Not.

One line to keep straight: the exclusion attaches to the award, not to the account it lands in. Once the money is invested, the dividends, interest, and capital gains it produces are taxed under the ordinary rules that apply to anyone else's portfolio. Nothing about the award's origin carries forward to shelter what it earns.

That is a portfolio question rather than a filing question, and it is the subject of its own article: how to invest a VCF award tax-efficiently. The rest of this page stays on the tax treatment of the award itself.

The Relief Most Families Never Claim: Income Tax Forgiveness

Everything above is about whether the award is taxed. This is a different question, and it is the one families most often go years without hearing about.

If someone died as a result of the September 11 attacks, both the federal government and New York forgive that person's own income tax. Not the tax on the award. The income tax the decedent owed on their ordinary income, going back years.

What the federal government forgives

IRS Publication 3920 provides that for someone who died as a result of the attacks, income tax is forgiven for 2000 and all later years up to and including the year of death. If the total benefit across all eligible years comes to less than $10,000, Publication 3920 provides a $10,000 minimum.

What New York forgives

New York's relief comes from Chapter 85 of the Laws of 2002, and it is broader than "state tax" suggests. Publication 59 states that for tax year 2000 and after, New York forgives the New York State, New York City, and Yonkers income tax liabilities of these decedents, as well as liabilities for the Metropolitan Commuter Transportation Mobility Tax.

Two differences from the federal relief are worth knowing. New York's relief has no minimum benefit, which Publication 59 calls out directly as a way the state relief is similar but not identical to the federal version. And only decedents who would have had a New York tax liability in the first place are eligible.

The claim is made on Form IT-59. You do not calculate the forgiveness yourself; the instructions say you file the form for all eligible years and the Tax Department computes it. Returns associated with the claim are marked KITA-9/11 across the top with special condition code K2.

The Refund Window Can Close

Eligibility and a refund are not the same thing. Forgiveness of tax still owed simply means it does not have to be paid. Getting back tax already paid is a refund claim, and refund claims run on the ordinary statute of limitations.

Publication 59 states the general rule: a claim for credit or refund must be filed within the later of three years from the date the return was filed or two years from the date the tax was paid. The Form IT-59 instructions carry a worked example that shows what that means in practice. A decedent who died in August 2014 was eligible for forgiveness back to 2011, but the 2011 statute expired on April 15, 2015.

So an eligible year can produce nothing if the window on it has already closed. There is one exception noted in Publication 59: Chapter 204 of the Laws of 2014 allows the refund statute of limitations to be suspended for a taxpayer unable to manage financial affairs due to disability, under Tax Law section 687(k).

If this could apply to your family, the dates are the first thing to put in front of a tax professional, before anything else.

What Is Not Forgiven, and What Is Not Excluded

The relief has real edges, and knowing them keeps a claim clean.

Income replacement is not a qualified disaster relief payment. Publication 59 states that qualified disaster relief payments do not include insurance or other reimbursements for expenses, or income replacement payments such as lost wages, lost business income, or unemployment compensation, and that these must be included in New York adjusted gross income to the extent they are included in federal adjusted gross income.

Some income is outside the forgiveness entirely. Publication 59 lists as nonqualifying income: deferred compensation that would have been payable if the death had occurred for another reason; amounts payable from a qualified retirement plan or IRA to the beneficiary or estate; amounts payable only as death or survivor's benefits under pre-existing arrangements; income from an employer accelerating vesting or nonqualified deferred compensation after the attack; and interest on savings bonds cashed by the beneficiary.

New York Estate Tax: A Victim's Estate Is Exempt

Publication 59 states that estates of victims who died as a result of the September 11 attacks are exempt from New York estate tax, where the death resulted from the wounds or injuries received in the attack or by participation in the rescue or recovery operations.

Exempt from the tax is not the same as excused from the filing. Publication 59 sets out the filing requirements separately: the estate of a New York resident victim must file a New York estate tax return if the estate is required to file a federal estate tax return, and the estate of a nonresident victim must file if a federal return is required and the estate includes real or tangible personal property located in New York.

Federal estate tax is a separate question that this New York provision does not answer. If your family's combined assets are large enough for it to be a live question, that belongs with a CPA and an estate attorney who can look at the actual numbers.

If Your Family Is FDNY, NYPD, or EMS

Publication 59 also addresses survivors of public safety officers who died in the line of duty. To the extent they are excluded from federal adjusted gross income, it excludes from New York adjusted gross income a death benefit paid by the Bureau of Justice Assistance to a surviving dependent of a law enforcement officer or firefighter, and a survivor annuity received by the child or spouse of a public safety officer killed in the line of duty, a category it defines to include police and law enforcement officers, firefighters, and rescue squad and ambulance crews. Payments from the New York State World Trade Center Relief Fund are likewise not included in New York adjusted gross income.

What Should You Do Next?

If your family has a VCF award, or lost someone to a 9/11-related illness, these are the things worth checking:

1. Confirm how the award was reported: your tax professional should be working from IRS Publication 3920 for the federal side and NYS Publication 59 for the New York side
2. Ask whether income tax forgiveness was ever claimed: if someone in your family died of a 9/11-related illness, this is the question most likely to have been missed
3. Check the refund dates before anything else: the eligible years and the years still open for a refund are not the same list
4. Keep the estate questions separate: New York estate tax and federal estate tax are different, and the federal side needs a CPA and an estate attorney

We are not your tax preparer and we do not file these claims. What we can do is help you see where the money sits and what to ask, so you walk into that conversation knowing which questions matter.