Camp Lejeune Compensation Won't Be Taxed: Federal Bill Excludes Damages from Gross Income

If you’ve been following the ongoing legal battles surrounding the toxic water contamination at Camp Lejeune, this new legislation is a major financial win for those affected. The Lejeune Untaxed Compensation and Settlements Act of 2025 is short, sweet, and focused on one critical thing: making sure that money awarded to victims won't be taxed by the federal government.

Specifically, this bill amends Section 104(a) of the Internal Revenue Code (the part of the tax code that deals with what counts as income). It creates a new exclusion stating that any damages received from a lawsuit brought under the Camp Lejeune Justice Act of 2022 will be excluded from gross income. Translation: If you receive a settlement or judgment related to the contamination, you won't have to cut a check to the IRS for a portion of it. This change applies to any damages received after the Act becomes law.

The Real-World Impact of Tax-Free Settlements

For the thousands of veterans, their families, and civilians who lived or worked at Camp Lejeune and suffered serious health issues, this bill means their net recovery is significantly higher. Imagine a family that receives a $500,000 settlement to cover decades of medical bills and lost wages. Without this exclusion, that money could potentially be treated as taxable income, leading to a substantial tax bill—potentially tens of thousands of dollars—that eats into the intended compensation.

By making these damages tax-exempt, the bill ensures that the full amount of the awarded damages goes toward the recovery and care of the victims, as originally intended by the Camp Lejeune Justice Act. This is a crucial distinction, especially since these settlements are meant to compensate people for severe, life-altering illnesses caused by government negligence. It’s about maximizing the financial relief for people who have already paid a heavy price in health and suffering.

Who Pays the Price?

Because the bill is narrowly focused on compensation from a specific, federally mandated legal action, it avoids the complexity and potential loopholes often found in broader tax legislation. The impact is clear and direct: the beneficiaries are the victims of the contamination. The only entity bearing a 'cost' is the U.S. Treasury, which will see reduced tax revenue from these specific settlements. However, for those who argue that the government should not profit from compensation paid out for harm it caused, this bill closes that loophole, prioritizing the financial recovery of the victims over federal tax collection.