Some volunteer firefighters in PA receive small monetary incentives for service. How and where do you report this income considering the recent passage of the Volunteer Responder Incentive Protection Act (VRIPA) which allows the first $600 of volunteer firefighter incentives to be non-taxable on federal income tax?
According to Congress.gov, this is not effective for the 2019 tax year. It will impact the 2020 tax year, which you will file in 2021. Below is an excerpt from the above webpage (scroll all the way to the bottom):
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply with respect to taxable years beginning after December 31, 2019.
Regarding reporting this for 2019, did you receive a 1099 for these payments? Please identify the tax form you received, if any, so that we may advise the correct way to report it.
According to Congress.gov, this is not effective for the 2019 tax year. It will impact the 2020 tax year, which you will file in 2021. Below is an excerpt from the above webpage (scroll all the way to the bottom):
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply with respect to taxable years beginning after December 31, 2019.
Regarding reporting this for 2019, did you receive a 1099 for these payments? Please identify the tax form you received, if any, so that we may advise the correct way to report it.
Now it is the 2020 tax year. Is there an answer to this question? I was about to complete 1099's for some of our volunteers that received a yearly stipend over $600 but I wanted to see if there was an answer to this question so I know what to tell them about how to report it or if I even need to include it on the 1099 or maybe just the amount over $600?
Thanks for any insight you can provide!
Since the incentive is nontaxable (up to $600) on the federal return, do not include the first $600 on your tax return.
@BryanJ Include the entire amount on the 1099s issued and let the individual firefighters make the necessary adjustments on their tax returns.
Thank you for the quick reply! That helps a lot! As a related question, can you tell me whether I should use the new 1099NEC form or continue using the 1099MISC? I have used the MISC in years past but I put the amount in box 7. Now that it has changed, I'm not sure if I should use box 1 of the NEC form or keep using MISC and put the amount in box 3 instead of 7. These are 100% volunteer firefighters who receive a small incentive payment once a year. Some of these payments exceed $600, but most do not. I only complete the 1099 for those that are $600+.
The IRS says that if the incentive payment is considered "payment for services" it should be reported on Form 1099-NEC. If the payment is not considered payment for services and is considered more like an award, enter the payment in Box 3 of form 1099-MISC.
Since they are volunteers--not really paid for their service--I recommend 1099-MISC Box 3.
Keep in mind that if the payment is less than $600, neither form has to be prepared.
What if the payments received were based on calls made or meetings attended for the volunteer? I am a volunteer firefighter, as is the entire department, and we received incentive pay based on calls responded to. Since it is not just a one time payment, would it still be considered an award? Or would I have to report as payment for services? Thanks in advance.
Firefighters
This discussion addresses some of the common questions we receive from firefighters and their employing organizations.
Compensation
Generally, tax laws apply to firefighters in the same manner as for other types of workers. It does not matter whether firefighters are termed “volunteers”, are considered employees, or are identified by any other name, if the work they do is subject to the will and control of the payer, under the common-law rules, they are employees for Federal tax purposes. The determination as to whether workers are common-law employees or independent contractors is made applying the same standards used for other workers.
Similarly, it does not matter whether they are paid on a “call” basis, monthly, hourly, etc.; or whether the worker is full-time or part-time. These payments are wages that should be reported on Form W-2, subject to withholding for Federal income tax, social security, and Medicare purposes. Employers are responsible for withholding on these wages and filing Form 941.
If a worker is a common-law employee, any amounts received that are not exempt under a special provision, are reported on Form W-2 as wages. It does not matter what the payments are called.
I received a stipend from our fire district in 2020 for services as a volunteer firefighter. I also received a W-2 reflecting the amount of the payment I received. Since the amount on the W-2 reflects the entire amount I received, which is in excess of $600, how do I make the necessary adjustment to my return on the entry(ies) in Turbo Tax to receive the benefit of the VRIPA?
Volunteer Responder Incentive Protection Act (VRIPA) exempts nominal volunteer recruitment and retention incentives from being subject to federal income tax and reporting requirements for the 2020 tax year. Specifically, H.R. 1865 exempts property tax benefits and up to $600 per year in other incentives, such as stipends, that volunteer fire and EMS personnel receive as a reward for their service.
When a volunteer emergency responder incurs expenses in connection with his performance as an emergency responder, he or she can deduct those expenses as a charitable contribution to the extent that the expenses exceed the amount of any qualified payment excluded from gross income and to the extent that the volunteer emergency response organization is a qualified charity under section 170.
The following is a suggested way to remove the $600, if you believe it is included in your W-2. The maximum allowable exclusion is $600 as noted above.
This creates an error when I attempt to e-file my federal return, saying a negative number can't be in that field of the calculation worksheet. None of the previous error checks found it and I can't override it to continue to e-file. Is there a work around?
@abbottl You will need to mail your tax return in if you have the negative income figure listed on it. If you account for it be reducing the income reported on the 1099 form, the IRS will probably adjust your tax later on and send you an invoice for the tax due.
I believe the deduction on incentive income is up to $600. So you shouldn’t have a negative amount. If your incentive income was $400 then you would report $0. That is how I understand it.
My cousin received a 1099-NEC as a volunteer Firefighter and made about $4,200 last year but he also made less that 12,400 this year so would he still need to file his tax return to pay the SS and Medicare portions of the 1099-NEC?
I used the negative $600 figure because my fire department provided me with a W-2 that was over $600 and the $600 deduction was included in their total figure so I had to reduce the income by the $600 to get the credit. I e-filed with TurboTax Deluxe and had no errors.
Your cousin should file a return even if they don’t owe due to making less than standard deduction. Any taxes they paid during the year they’ll receive back as a refund. Also, they won’t have SS and Medicare tax on the incentive at least my husband didn’t. You wild report the $4,000 on NEC form and then report a -$600 on another line with VIRPA in the description so the net reported is $3,400. If you can’t get the negative to accept, report the net only for the 1099NEC form and reference VIRPA in the description l.
That's what i thought but it looked like his town did not deduct any SS or Medicare and that would mean he would technically have to pay his and the towns portion of the tax correct? Also he is 19 y/o and is just concerned if he needs to file a return or if he is okay not filing since he is under the limit. I am just not sure how the 1099-nec works compared to a regular W-2
A tax return must be filed for the NEC since there are self employment taxes due. The $12,400 is not related to this. The incentive is a state issue, not federal. Do not deduct the incentive on the federal return.
That is incorrect. VIRPA is a new Federal law from December 2020. Please see this link
https://www.nvfc.org/volunteer-responder-incentive-protection-act-restored-for-2020-tax-year/
https://www.congress.gov/bill/116th-congress/house-bill/1241
@wickman even though he is 19 he needs to file a return. Do Not report the 1099NEC on the schedule C the department actually gave them the wrong form. He should have received a 1099M. He is a volunteer, correct? The NEC is for nonemployee compensation. The 1099M is for “other income such as incentives”. My husbands department used the incorrect form as well. Also, report the income from his W2, once he takes the standard deduction, as long as he is not a dependent, he may end up with a refund.
Thanks for your insights. Like your husband, I also received a 1099-NEC for my volunteer firefighter annual stipend (total $800). Do you have any reference material to further explain why a 1099-MISC should have been used instead of the 1099-NEC? I'm trying to gather as much research as possible before I go to our government trustee to question how things are being handled.
From playing around a bit with the numbers, I see there is a significant difference in the taxes owed on $800 reported as NEC vs. the same $800 reported as MISC, so clearly this is an important point to get right. Once I get this sorted, I do understand that I need to reduce that amount down to $200 to take advantage of the VRIPA provision for 2020.
Thanks in advance for your (or anyone else's) input!
The only resource I can reference are the instructions for the 1099NEC and the 1099M. This NEC form instructions state it be used for non employee compensation only. The 1099M form indicates use Box 3 for awards and incentives.
irregardless of the form used, this is what I sent to H&R Block who was doing my father in laws taxes and she agreed with this information. Even though the fire department sent the NEC form it should not be reported o. Schedule C.
I did some research on the Schedule C and this is what is in the first paragraph of the instructions:
An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity, not-for-profit activity, or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8.
Since the primary purpose for engaging in the activity of Volunteer Fireman was not for income but more of a hobby and a sporadic activity depending on the # of calls in a given week, it does not qualify as a business.
I also looked at the Schedule 1 line 8 instructions and this is what it states:
Line 8 Other Income
Do not report on this line any income from self-employment or fees received as a notary public. Instead, you must use Schedule C, even if you don’t have any business expenses. Also don’t report on line 8 any nonemployee compensation shown on Form 1099-MISC or 1099-NEC (unless it isn't self-employment income, such as income from a hobby or a sporadic activity).
Again mentioned is a hobby or sporadic activity. I don't think Schedule C is the correct form to use for his volunteer work given that it is NOT self-employment income, sporadic, not intended to be a source of income, and more of a hobby than a business. Please let me know if you and the team at HR Block disagree.
Hope this helps!