As 2018 draws to a close, there is rare good news regarding taxation, as reported in Fortune magazine: according to research from Morgan Stanley, taxpayers can expect refunds to be up 26 percent over last year. Of course, to minimize your tax bill without getting a threatening letter from the IRS, it’s important to be aware of the finer points of the law, especially as they affect workers in your field. According to the IRS, there are specific issues that impact firefighters, which we highlight below.
Whether firefighters are full-time paid workers or termed “volunteers,” they are generally considered employees when it comes to tax matters. (If you’re being treated as an independent contractor, you might want to look at IRS Publication 15, Employer’s Tax Guide, to see if the IRS would be of the same opinion.) So, any compensation you receive, regardless of your employer’s payment practices, should be reported on a W-2. Employers must withhold amounts for federal income tax, Social Security, and Medicare.
Firefighters may receive certain fringe benefits that are nontaxable. Exempt benefits can include:
- Meals (when provided for the convenience of the employer)
- Employee discounts
- Achievement awards
- Health insurance
- Educational benefits
Reimbursements for expenses may be excludable from wages, as we discuss below.
If your fire department participates in a qualifying public retirement system, or has a Section 218 agreement with the Social Security Administration, your employer does not have to withhold Social Security tax.
If you only worked as a firefighter on a temporary basis, due to a “fire, storm, snow, earthquake, flood, or other similar emergency,” you may fall under an IRS exception that does not require your employer to withhold Social Security and Medicare. But this exception would not apply if your emergency employment was recurring or routine.
The IRS generally treats your payment for expenses for transportation, equipment, clothing, and so on as taxable wages. But if your department pays “under an accountable plan,” tax reporting is not required. Basically, this means you have to account for your expenses. On the other hand, if amounts are just paid out to cover expenses your department anticipates you’ll incur, those payments are taxed as income.
Finally, if you are a volunteer firefighter who receives benefits in the form of state or local tax credits or rebates, the IRS considers the value of those benefits to be taxable income.
We know you work hard for your money, and we want you to keep as much of it as legally possible. If you have any doubts, call the IRS or consult a knowledgeable accountant.