Congress has announced it has reached a budget deal that includes Federal tax relief for individuals who received settlement income related to wildfires. As of this writing, the bill has not passed yet, but assuming it does, The Tax Relief for American Families and Workers Act of 2024 will provide:

Extension of Rules for Treatment of Certain Disaster-Related Personal Casualty Losses
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 provided tax relief to certain individuals in qualified disaster areas. The relief included special rules for qualified disaster related personal casualty losses, including eliminating the requirement that casualty losses must exceed 10 percent of adjusted gross income (AGI) to qualify for the deduction, requiring losses to exceed $500 per casualty in order to be deductible, and allowing taxpayers to claim the casualty loss deduction “above the line,” i.e., without itemizing their deductions.

This section extends the rules for the treatment of certain disaster-related personal casualty losses as passed in the Taxpayer Certainty and Disaster Tax Relief Act of 2020, including any area with respect to which a major disaster was declared by the President during the period beginning on January 1, 2020, and ending 60 days after the date of enactment of the proposal if the incident period of the disaster (as specified by the Federal Emergency Management Agency as the period during which the disaster occurred) begins on or after December 28, 2019, and on or before the date of enactment of the proposal.

Exclusion From Gross Income for Compensation for Losses or Damages Resulting From Certain Wildfires

In general, gross income is defined as income from whatever source derived. This section excludes from gross income any amount received by or on behalf of an individual as a qualified wildfire relief payment. It defines “qualified wildfire relief payment” as any amount received by or on behalf of an individual for expenses, damages, or losses incurred as a result of a qualified wildfire disaster, but only to the extent any expense, damage, or loss is not compensated for by insurance or otherwise. This section also includes provisions to deny double benefits.

This section applies only to qualified wildfire relief payments received by an individual during taxable years beginning after December 31, 2019, and before January 1, 2026.

Once we get the actual Internal Revenue Code we can confirm how and who this will benefit.