Volunteer Firefighter Incentive income

[wickman]

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?

[Kurt1319]

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.

[lynnscott132]

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.

[wickman]

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

[AmyC]

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.

@wickman

[lynnscott132]

@AmyC 

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.

[AmyC]

Thank you!!

[dan_2134]

@lynnscott132 

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!

[lynnscott132]

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!