Volunteer Firemen Relief Benefit

[dawniepat]

My husband receives a $200 monthly hardship benefit from his volunteer fire company relief association.  He will receive this same monthly amount for ten years.  You must be at least 65 years old and eligible for the life insurance death benefit in order to qualify. Once he dies, his beneficiary will need to repay the $24,000 he received over those ten years to the Relief Association out of his $100,000 death benefit.  Should he be receiving a 1099-MISC form each year to report the $2400 annual benefit as Other Income (box 3).  It seems to me if you have to repay the money, it is a loan and not income.

[Vanessa A]

If it is a loan, then no, it is not considered taxable income and no he should not receive a 1099-Misc for this income.  The fact that it has to be paid back and there is a set number of payments that he will receive makes it sound like a loan. 

 Is the $24,000, the cash value of the policy?  If so, this would again make it seem as this is a loan as generally, you cannot take a loan for more than the actual cash value of the policy. 

[dawniepat]

No the $24,000 is not the full value of the insurance benefit the policy is for $100,000 payable on death. The check is generated from the Fireman's Relief Assn. which is the producer of the 1099MISC. When questioned about why they generate the 1099Misc, the answer was "I don't know, it's just how we do it" The relief association expects to be repaid when the policy pays the $100k.

[BillM223]

According to the IRS, no, he should be receiving a W-2 ("despite being a 'volunteer'), not a 1099-MISC. However, issuing a 1099-MISC has been a common practice for many volunteer companies for many years, and even though the IRS has of late issued some instructions on how this should be handled, I imagine it will take years before all organizations change over.

As for the repayment of the $24,000, this sounds like a way to fund the $100,000 life insurance, but we would have to understand a lot more about the books in order to say more.

Please see "FEDERAL TAX EXEMPTION FOR VOLUNTEER RESPONDERS MADE PERMANENT" and "Issues for Firefighters" for background. I would encourage you also to contact the National Volunteer Fire Council for the latest information.

[dawniepat]

Perhaps you misunderstood... the $200/mo. or $2400 for the tax year is basically an interest free loan from the Relief Assn. (not the insurance co.) using the $100,000 policy payable on death as collateral against the monthly payments which end after 10 years. The Relief Assn. will collect the $24000 when the death benefit is paid, and not before. These are not earnings as I see it because it must be repaid eventually from the death benefit. Therefore, no W2 or 1099 should be issued. How do we object to the 1099MISC with the Relief Assn. that issues it?

[DaveF1006]

 This is a loan that does not need to be reported on a return because the loan will need to be paid back. 

@dawniepat