09-14-2002, 10:44 AM #1
Tax Abatements/Exemptions for Volunteers
I know there was a discussion going on about this, but I cannot find it so I am starting a new thread. The following two items came through the listserve of the CT Commission on Fire Prevention and Control.
EAST HADDAM FIREFIGHTERS AND AMBULANCE VOLUNTEERS GET TAX INCENTIVE PLAN
APPROVED BY UNANIMOUS TOWN MEETING
EAST HADDAM, Connecticut. -- September 11, 2002 -- The East Haddam Volunteer Fire Department today announced that a unanimous Town Meeting approved the department's proposed tax incentive plan designed to recruit and retain volunteer emergency services volunteers.
The plan, which also benefits volunteers for the East Haddam Ambulance was drafted by attorney and Fire Lieutenant Rob Lucheme, who also serves as the Department's Training Officer and as the State of Connecticut Commission on Fire Prevention and Control's Volunteer Recruitment and Retention Coordinator.
Said Fire Chief Donald Angersola, "This plan is a tribute to Rob Lucheme's persistence. The first time we tried to get this through, we just couldn't get any traction. Rob refused to give up. We couldn't be happier."
First Selectman Sue Merrow agreed that the first time around, there just wasn't enough support, given the small tax base and the number of other volunteers. But, said Merrow, "9-11 changed all that. Suddenly everyone in town realized that these weren't just ordinary volunteers. They really were special. And when we calculated the number of hours they give up to train and maintain their professional certifications, we realized that we would be penny wise and pound foolish not to support them wholeheartedly."
The East Haddam Volunteer Fire Department is a private, non-profit organization operating three firehouses and providing fire protection services to the citizens of East Haddam and nearby surrounding towns. In addition to providing fire protection services, the Department has a strong outreach program, providing fire prevention education and kid-friendly events such an Easter Egg Hunt and Kids Christmas party where all young children, regardless of income, are invited to meet Santa and get an age-appropriate toy.
The Office of Legislative Research has issued a report on the Property Tax Exemption for Volunteers. You may view the report at the following address:
Below is the document from the URL
August 29, 2002
PROPERTY TAX EXEMPTION FOR VOLUNTEERS
By: Veronica Rose, Principal Analyst
Kevin E. McCarthy, Principal Analyst
You asked for background information on the state's property tax incentives for emergency service volunteers and whether the Internal Revenue Service (IRS) has ruled that the incentives are taxable.
Connecticut law allows towns to provide property tax abatements or exemptions to volunteer fire fighters and other volunteer emergency service workers. (An abatement directly reduces the taxes due on a property while an exemption reduces a property's taxable value and indirectly its taxes. ) As far as we can determine, IRS has not issued a binding ruling on the tax implications of Connecticut's program. But it has ruled that volunteers receiving benefits under a similar program in Massachusetts must pay income taxes on the benefit. In addition, the municipality is liable for the employer's and employee's share of contributions under the Federal Insurance Contributions Act (FICA, the Social Security tax) on the value of the tax benefit provided to individuals who perform volunteer work for municipalities. Unless the volunteer reimburses the municipality for its payment of the employee's share of FICA, the volunteer must pay federal income tax on this amount. The actual amount of federal income tax that the volunteer would be required to pay would depend on his total income, among other things.
With regard to Connecticut's program, IRS has provided an advisory statement that the taxability of benefits provided to emergency service volunteers would not depend on whether the benefit is a tax abatement or an exemption. It also noted that under federal tax law, a person can be considered an employee if he receives a benefit for providing a service, even if he is not paid.
Connecticut law allows towns to provide property tax abatements or exemptions to volunteer fire fighters, emergency medical technicians, paramedics, ambulance drivers, or non-salaried local civil preparedness directors. The maximum abatement is $ 1,000; the maximum exemption is $ 1 million divided by the town's mill rate (expressed as a whole number per $ 1,000 of assessed value) at the time of the assessment (CGS § 12-81w).
A Massachusetts law allows municipalities to provide up to $ 500 in property tax abatements per year to senior citizens (over age 60) who volunteer to provide services to participating municipalities. The maximum amount of the abatement that a volunteer may receive for each hour of service is capped by the state's minimum wage law. The abatements are in addition to any other property tax exemptions that may be available under state law. They are not considered income for purposes of state taxation, withholding, unemployment insurance, or workers' compensation. But, participating volunteers are considered public employees for purposes of municipal tort liability (Mass. Gen. Laws 59 § 5K).
IRS RULING ON MASSACHUSETTS PROGRAM
In a July 10, 2001, letter to its Boston office (attached), IRS noted that the federal tax consequences of the Massachusetts abatements are a matter of federal, and not state, law. Federal law defines "income" and "employment" broadly in the context of the income tax and FICA. The letter stated that property tax abatements under the Massachusetts program constitute income in an amount equal to the amount of the abatement. Because the $ 500 abatement is less than the one withholding exemption under federal income tax law, the municipality is not required to withhold income tax on this amount. But it must file a W-2 with IRS, reporting all wages (including the tax abatement) for the volunteer. The opinion noted that the volunteers are "most likely" employees under federal tax law. The opinion notes that it is advisory and cannot be cited as precedent.
On January 15, 2002, Heather C. Maloy, associate chief counsel for IRS, sent a memorandum to Maureen O'Brien, an associate area counsel for IRS' Boston office, affirming the advisory opinion. Maloy stated that the $ 500 abatement is income subject to income tax. If the volunteer does not reimburse the municipality for paying the employee's share of FICA, the volunteer must pay federal income tax on that amount as well. Under this scenario, the municipality would have to pay $ 82. 82 and the volunteer's income for income tax purposes would be $ 541. 41 (the abatement plus the $ 41. 41 employee share of FICA paid by the municipality). Maloy stated that the abatement is not a gift or a form of welfare, both of which would be tax-exempt. She noted that the Massachusetts law indicates that the abatement is consideration for services rendered. The fact that the beneficiaries are called volunteers does not exempt the benefit from federal taxation, "as the tax forgiveness is clearly provided in consideration for work done. "
IRS GUIDANCE ON CONNECTICUT'S PROGRAM
On September 28, 2000, IRS' Washington office responded to a letter from a Connecticut attorney with regard to the tax consequences of the Connecticut program. The letter is not a binding ruling and only indirectly addresses your question. The letter notes that it is not necessary that a worker receive wages to be an employee for purposes of FICA. However, the worker must be subject to direction and control of the employer. It also notes that the U. S. Supreme Court has held that an employer's payment of an employee's tax obligation counts as income for income tax purposes. Finally, it notes that the tax treatment of a tax benefit depends on its substance, rather than whether it takes the form of an abatement or exemption.IACOJ Agitator
Fightin' Da Man Since '78!
09-15-2002, 11:40 AM #2
- Join Date
- Aug 2001
How about credits?
Our state association has been considering trying to get some sort of similar legislation passed here. My question for those from Delaware is if there has been any IRS rulings on the tax credit you folks have. The NVFC legislative office said the credit was not covered under the ruling discussed in the previous post. It would nice to hear from those directly concerned. If you have any rulings or a link to a reference please post here. Any info will help in our initiative, thanks in advance.
God Bless America and all who protect her!
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