By Steward Rouleau, FSLG Senior Analyst
The Mortgage Forgiveness Debt Relief Act of 2007 contained an important provision affecting firefighters and other emergency responders who receive local tax benefits or other benefits for volunteer services. This provision was further clarified by the Heroes Earnings Assistance and Relief Tax Act of 2008.

What Are the New Benefits?
The new law provides that volunteer firefighters and emergency responders may exclude certain benefits from income provided on account of the performance of volunteer services.

Property Taxes
A common practice in many jurisdictions is to provide volunteers with reductions or abatements of state or local property taxes in recognition of work performed. Because this represents a benefit received in exchange for services performed, under previous law this represented compensation and gross income for federal tax purposes under Internal Revenue Code section 61. Beginning January 1, 2008, volunteers who perform services for a qualified volunteer emergency response organization may exclude the value of property tax abatements from Federal gross income. These amounts are also excluded from Social Security and Medicare (FICA) tax.

Other Benefits
In general, reimbursements for expenses are included in the income of the volunteer unless they are made under the provisions of an Accountable Plan. An Accountable Plan requires that an employee timely account for all reimbursements and return any excess amounts; see Publication 15, Employer’s Tax Guide. The new law provides that the value of other benefits that qualifying volunteers receive (such as reimbursements for expenses or equipment allowances), up to $30 for each month of service during a calendar year may be excluded from income for income tax, Social Security and Medicare purposes. The new law does not require that these payments be made under an Accountable Plan. If the volunteer performs services in each month of the year, the maximum exclusion for these benefits is 12 x $30, or $360 per year.

Who Is Eligible?
Individuals who perform services for qualified volunteer emergency response organizations are eligible for these benefits. A “qualified volunteer emergency response organization” for this purpose is an entity that is organized and operated to provide firefighting or emergency medical services for persons in the state or political subdivision. The $30 per month exclusion applies to amounts not otherwise excludable as reimbursements received under an Accountable Plan. For more information on accountable plans, see section 5 of Publication 15-B.

No Double Benefit
Property taxes are generally deductible as itemized deductions, but any amounts excluded under these provisions may not be included on Schedule A as deductible taxes.

When Can the Exclusion Be Taken?
The exclusion is available for tax years 2008, 2009 and 2010.

Further Information
The IRS expects to issue further guidance on the implementation of this law in the near future. Visit the IRS Website for updated information.