The SEPTIC Act: What a Quiet Tax Fix Means for Homeowners and the Onsite Industry

The bill was introduced by Rep. Tom Suozzi (D-NY) on April 14, 2026 with cosponsors Reps. Greg Steube, Aaron Bean, and Gus Bilirakis (all R-FL), and was referred to the House Ways and Means Committee the same day. The sponsors timed their public messaging to Tax Day.

The bill itself is short and does exactly one thing. But that one thing matters.

Here’s the short version: when a state or local government pays a homeowner — or pays a contractor on a homeowner’s behalf — to repair, replace, or hook up to sewer in place of a failing septic system, the IRS currently has no clean nationwide rule that says whether that money is taxable income. There is one specific exception, granted by IRS announcement four years ago for one program in one New York county. Everywhere else, the question is open, and homeowners often find out the answer only after a 1099 lands in the mailbox. The SEPTIC Act closes that gap by adding a new exclusion to Section 136 of the Internal Revenue Code — the section that already exempts utility provided energy conservation subsidies — for state and local wastewater management subsidies on a homeowner’s residence.

That’s it. No new spending, no new program, no new agency. A small amendment to the tax code that brings federal treatment of septic grants in line with how energy efficiency rebates have been handled for decades.

What the Bill Actually Says

The bill amends IRC §136(a) — currently a one-sentence exclusion for energy conservation subsidies provided by public utilities — to add a second category: any subsidy provided directly or indirectly by a state or local government to a resident of that state or locality for the purchase or installation of a wastewater management measure on the taxpayer’s residence.

A “wastewater management measure” is defined broadly: any installation or modification of property primarily designed to manage wastewater, expressly including septic tanks and cesspools, with respect to one or more dwelling units. The §136 section title is renamed to add wastewater alongside energy, and the subsection-(c) heading shifts from “Energy Conservation Measure” to “Definitions” — drafting that suggests the authors expect the category to grow.

The exclusion applies to amounts received after the date of enactment, in taxable years ending after that date. There is no retroactive relief for homeowners who already paid tax on a 2024 or 2025 grant.

The Suffolk County Backstory

If you’re wondering why this looks like a tidy little fix to a problem most people didn’t know existed, here’s the short history.

Suffolk County, New York established its Septic Improvement Program in 2017 under Local Law 15-2017 to encourage homeowners to replace cesspools and conventional septic systems with Innovative and Alternative On-site Wastewater Treatment systems — primarily to reduce nitrogen pollution flowing into Long Island Sound, the South Shore Estuary, and the Peconic Estuary, all of which have been classified as impaired bodies of water. Grants of up to $30,000 went directly to installation contractors; the homeowner never saw the cash.

That structure made the next chapter unusually painful. In 2018, the Suffolk County Comptroller’s office began issuing 1099s to participating homeowners — who, again, had never received the money. In March 2019 the Comptroller requested a formal opinion from the IRS, and in January 2020 the Service ruled the grants were taxable income to the homeowners. Some homeowners reported their tax bills jumping by as much as $8,000; others got pushed into higher brackets, lost senior real-property tax exemptions, or saw their Social Security benefits become taxable. Many homeowners declined the program entirely.

After roughly two more years of advocacy involving Sen. Chuck Schumer, then-Rep. Lee Zeldin, County Executive Steve Bellone, and a March 2021 petition from the Suffolk County Commissioner of Health, the USDA’s Natural Resources Conservation Service issued a determination on November 16, 2022 (87 FR 68669) that the program’s payments were primarily for the purpose of conserving soil and water resources and protecting or restoring the environment. Two weeks later, on December 2, 2022, the IRS issued Announcement 2022-26 confirming that Suffolk County’s grants were excludable from gross income under IRC §126(a)(8) — the catch-all provision for state and local environmental cost-share programs.

That announcement fixed Suffolk County’s problem. It did nothing for anyone in Sarasota County, Florida, or in coastal North Carolina, or in the Chesapeake Bay watershed, or in any of the other jurisdictions running similar cost-share programs.

Why §136 Is a Cleaner Path Than §126

The SEPTIC Act doesn’t simply nationalize what Announcement 2022-26 did. It provides a materially better statutory mechanism.

Section 126 — the section Suffolk County relied on — is a cost-sharing exclusion that requires two affirmative determinations before any program qualifies: a USDA Secretary finding that the program is primarily environmental in purpose, and a Treasury Secretary finding that the payments don’t substantially increase the income derived from the property. The “excludable portion” is then calculated under a fair-market-value formula tied to capital expenditure rules, and §1255 can recapture amounts excluded if the property is sold within twenty years. It works, but it is slow, case-by-case, and complicated.

Section 136, as amended, requires none of that. The bill creates a flat statutory exclusion for any state or local wastewater management subsidy on a residence — no Secretary determination, no fair-market-value formula, no recapture. Every state and local program is automatically in. That is the real upgrade. The §126 path remains available for non-wastewater environmental programs, but for septic, the SEPTIC Act puts the exclusion on the same simple footing as utility energy conservation rebates.

Why It Matters for Homeowners

A typical advanced nitrogen-reducing system in Florida runs $15,000 to $35,000, with some Suffolk County jobs exceeding $40,000. A conventional repair or full conventional replacement is generally $5,000 to $20,000 nationally, with most homeowners landing between $7,000 and $13,000.

State and local cost-share grants typically run from $7,000 to $30,000, depending on jurisdiction. Florida programs in Citrus, Pasco, Seminole, Wakulla, and Hernando counties cap between $7,000 and $10,000. Brevard County’s Save Our Indian River Lagoon program goes up to $20,000. Suffolk County paid up to $30,000. Maryland’s Bay Restoration Fund covers up to 100 percent of the system cost for households earning under $300,000.

Without the SEPTIC Act, a homeowner who receives a $15,000 grant while sitting in the 24 percent federal bracket is potentially looking at a $3,600 surprise tax bill on assistance they thought was free. That is enough to make some homeowners turn down the help and let a failing system keep failing — the opposite of what these programs exist to do.

The bill removes that disincentive. It does not create new grant programs, but it makes the existing ones work the way homeowners assumed they worked all along.

What It Changes for State and Local Programs

For state and county agencies, the practical effect is simpler program design and cleaner outreach. Grant materials no longer need a footnote that says “consult a tax advisor regarding federal income tax implications.” Pilot programs and bond-funded watershed initiatives become easier to defend to county commissioners who don’t want to explain to constituents why the help came with a tax bill.

It also lowers the political risk for states considering new septic cost-share programs. North Carolina, Virginia, and South Carolina all have ongoing groundwater and surface water quality concerns tied directly to onsite system failure. The SEPTIC Act makes a federally clean path easier to design.

The Industry Read

For installers, pumpers, soil scientists, and inspectors, the read is straightforward: the bill modestly increases the realized value of every existing state and local cost-share dollar, which should support program participation rates and, downstream, demand for repair and replacement work.

It is not a stimulus. It will not flood the market with jobs. But for the contractor whose pipeline depends in part on county repair programs, it removes friction. For the trade as a whole, it is quiet validation that septic infrastructure is now being treated the same way the federal government treats home energy improvements — as something worth encouraging, not penalizing.

Outlook

H.R. 8280 is bipartisan, narrowly scoped, costs the Treasury very little, and has supporters in both Florida and New York delegations. That is roughly the profile of legislation that passes attached to something larger — an end-of-year tax package, a continuing resolution, or a broader water infrastructure bill — rather than as a standalone vote.

Worth tracking. Worth supporting. And worth telling your customers about the next time one of them asks whether that county grant comes with a string attached.

Sources:

H.R. 8280, 119th Cong. (2026); Internal Revenue Code §§ 126, 136, 1255; IRS Announcement 2022-26 (Dec. 2, 2022); 87 Fed. Reg. 68669 (Nov. 16, 2022);
Suffolk County, N.Y. Local Law No. 15-2017; Florida Department of Environmental Protection, Onsite Sewage Program; Press releases from the offices of Reps. Suozzi, Steube, Bean, and Bilirakis (April 2026); County septic grant program documentation from Citrus, Pasco, Seminole, Wakulla, and Brevard counties, FL, and from Maryland Bay Restoration Fund.