June 1, 2021
On May 18, the Internal Revenue Service (IRS) formally responded to requests by National Volunteer Fire Council (NVFC) chair Steve Hirsch and NVFC director from Maryland Eric Bernard for clarification on implementation of the tax exemption on volunteer recruitment and retention benefits established by the Volunteer Responder Incentive Protection Act. The following are the questions posed by Hirsch and Bernard along with the relevant IRS responses in italics and key sentences in bold:
1. Whether stipends ranging from $450 to $700 per year are considered “qualified payments” under VRIPA and therefore exempt from federal income tax.
“Section 139B(a) of the Code provides that, for any member of a qualified volunteer emergency response organization, gross income shall not include any qualified payment. Section 139B(c)(2)(A) defines a qualified payment as any payment, whether reimbursement or otherwise, provided by a State or political division thereof on account of the performance of services as a member of a qualified volunteer emergency response organization. Section 139B(c)(2)(B) provides a limitation on the amount that may be excluded from gross income. The amount excluded from gross income is limited to $50 for each month that the taxpayer performed such volunteer services during that year…
“…If a taxpayer receives more than the maximum amount allowed under section 139B(a), the excess is taxable. For example, if a taxpayer provides services for 12 months during the taxable year and receives $700 in payments for those services, the maximum amount of the exclusion would be $600 and the remaining $100 would not be considered a qualified payment.”
2. How emergency services agencies should report “qualified payments” to the IRS, or if it is even necessary to do so.
“Qualified payments are excluded from income and are not reportable to the IRS. If the firefighters are employees, employers should report payments that are not qualified payments, including the amount of stipends in excess of $50 per month, on Form W-2, Wage and Tax Statement. If the firefighters are independent contractors, payors should report payments that are not qualified payments, including the amount of stipends in excess of $50 per month, on Form 1099-NEC, Nonemployee Compensation.”
3. Whether length of service award payments are considered “qualified payments” under VRIPA.
Section 457(e)(11)(A)(ii) provides that a plan paying solely length of service awards to bona fide volunteers or their beneficiaries on account of qualified services performed by such volunteers is treated as not providing for the deferral of compensation under section 457. Section 457(e)(11)(C) defines qualified services as fire fighting and prevention services, emergency medical services, and ambulance services… …Section 457(e)(11)(B)(ii) and (iii) limit the aggregate amount of length of service awards accruing with respect to any year of service by any volunteer. Payments under a length of service award plan for a taxable year are generally provided for qualified services performed prior to the taxable year.
Click here to read the full IRS letter. Questions regarding the letter or VRIPA generally can be directed to NVFC chief of legislative and regulatory affairs Dave Finger at dave@nvfc.org.