This post is not intended to be tax advice. Firefly Admin Inc. does not provide tax advice, and all participants and beneficiaries who receive a LOSAP benefit are strongly encouraged to consult with a qualified tax professional regarding the information provided in this post. The information contained herein is accurate as of the date of the post. Guidance or publications issued by the Internal Revenue Service after the date of this post may invalidate some or all of the information provided.
 
The following information regarding LOSAP may be used to assist someone in preparing a tax return for an individual who received a payment from a LOSAP during the 2022 tax year. It may also be helpful to anyone who wants to understand why a LOSAP payment was reported on a particular form. It is intended primarily for New York State residents. If the payment recipient lives outside of New York State, or the LOSAP is sponsored by a municipality outside of New York State, please consult the State’s tax department for details on how LOSAP payments are taxed in your State.
 

• LOSAP is an acronym for Length of Service Award Plan/Program

 

• Section 457(e)(11) of the Internal Revenue Code (the “Code”) sets the limits on the benefits that can be provided and the qualifications of volunteers to participate in a LOSAP. A program that qualifies as a LOSAP under this section of the Code is exempt from having to comply with all the other requirements of Section 457.

 

• Section 3121(a)(5)(I) of the Code provides that a payment from a LOSAP is not treated as wages for purposes of Federal Insurance Contribution Act (FICA) taxes. In other words, payments from a LOSAP are not subject to FICA tax (i.e., self-employment tax).

 

• LOSAP payments are subject to ordinary federal income tax. In general, LOSAPs are administered so that an individual will include a LOSAP payment in his/her taxable income for the tax year in which it was paid to him/her.

 

• LOSAP is not a pension, annuity, retirement or profit-sharing plan, or an IRA. Therefore, based on the 2022 instructions for the 1099-R, payments from a LOSAP should not be reported on a 1099-R. However, in some instances LOSAP payments are made from insurance contracts (e.g., annuity contracts) and the correct form to report a payment from an insurance contact is a 1099-R. If you received a 1099-R or any other tax form besides a 1099-MISC reporting payments from a LOSAP, please contact the company that issued that tax form for more information.

 

• Payments issued from LOSAP Trust Fund assets that are not insurance contracts (which represents most Firefly Admin Inc. clients) are reported on IRS Form 1099-MISC in Box 3 (Other Income). In accordance with the 2022 Instructions for the 1099-MISC and 1099-NEC:
  
  Generally, amounts paid to individuals that are reportable in box 1 are subject to self-employment tax. If payments to individuals are not subject to this tax, report the payments in box 3 of Form 1099-MISC.

 

• Payments reported in Box 3 of a 1099-MISC should likely be reported on line 8z of Schedule 1 of the Form 1040. For the description, we suggest writing the applicable section of the Code, which is 457(e)(11).

 

• For New York State residents, New York State Tax Law Section 612(c)(41) provides that payments from a LOSAP can be subtracted from an individual’s New York State taxable income provided that (1) the taxpayer is over age 59 ½ and (2) the benefit was not paid as a lump sum.

 

• For eligible New York State residents to take advantage of this favorable tax treatment, use supplemental form IT-225 and list the amount received using subtraction S-130.

 

• The 1099-MISC form does not include a box to indicate if the payment was made as a lump sum or on a periodic basis. Therefore, an individual taking advantage of the New York State subtraction must make his/her own determination on his/her eligibility.

 
 Please contact Firefly Admin Inc. with questions. 

Towards the end of 2022, the IRS released Notice 2022-55, which made cost-of-living adjustments for the benefit limitations provided in certain sections of the Internal Revenue Code.

One of those limitations is the maximum benefit that can be accrued in a Length of Service Award Program. The maximum benefit was increased from $6,500 to $7,000 effective with calendar year 2023.

Long-time followers of this limitation provided for in Section 457(e)(11) recall that the initial benefit limitation was $3,000. Specifically in NY State, this created some challenges for certain defined benefit plans, as the NY State law allowed a sponsoring municipality to provide a benefit that was  typically valued in excess of $3,000.

This situation was remedied when the Code was amended to increase the limitation from $3,000 to $6,000 beginning with calendar year 2018. The amending bill, HR 1, which was adopted during the 115th Congress (2017-2018), also included a cost-of-living adjustment provision (to be implemented in $500 increments).

As a result of the recent rise in interest rates, the $6,000 limit was increased to $6,500 in 2022. It was then increased from $6,500 to $7,000 beginning with calendar year 2023.

This change is merely a footnote for municipalities in New York State, as the maximum benefit allowed under State Law is less than $7,000. Specifically for defined contribution LOSAPs, the maximum contribution allowed into a participating volunteers account is $1,200, which is about 17% of the maximum allowed by the IRC. A more valuable benefit can be provided under defined benefit plans, with the actuarial value of those benefits that can approach $6,000 depending on the assumptions used. 

For readers of this blog outside of New York State, it is possible that a LOSAP could provide for benefit of up to $7,000 to be accrued in calendar year 2023 and beyond. It is still our desire to see the NY State law amended to allow sponsors of defined contribution plans to contribute a larger amount than the current limit of $1,200 - something more in line with the benefits provided by a defined benefit plan.

In this post, we will provide some insight on awarding points for self-directed, online training. In other words, training that is not interactive with an instructor or moderator, but an e-learning course that can be taken at the pace of the individual. The online course may include intermittent quizzes to ensure the individual is learning the material, but it is not interactive in that there is a live presenter, or a moderator/facilitator such as in the case with the mandated sexual harassment training. There are many outlets for firefighters to access this type of training, including insurance companies that provide training platforms to their clients and subscription-based e-training solutions that departments can purchase for their membership.
 
The answers provided in this post are not legal advice, and we suggest forwarding this post to your attorney before implementing any changes locally in response to this post. We view the information provided as best practices and not necessarily a one-size-fits-all approach. There are usually specific facts and circumstances within each fire department that should be considered, which is why involving your local attorney is critical when addressing any LOSAP point system issue.
 
The LOSAP point system includes two categories that are similar, but not the same – Training Courses and Drills. We’ve covered both of these categories in previous posts, which can be read by clicking the provided links. For the purposes of this post, we are assuming two basic rules regarding a Training Course:

• A Training Course is “a course of instruction having a prescribed topic and syllabus”, which is the definition found in Articles 11-AA and 11-AAA (ambulance squad LOSAPs). This is the differentiating factor from a Drill, which is more of an informal skills practice.
• A points for attending a training course can only be given for courses that were previously by the chief or the board of fire commissioners (OSC Opinion 97-13).

 
With this in mind, here are three questions that often arise regarding LOSAP points for self-directed online training:
 
What if the course is under one hour? The statute provides that a Training Course of under twenty hours in duration is one point per hour, up to a maximum of five points. A strict reading of the statute would seem to indicate that a Training Course that lasts less than one hour would not be eligible for a point. One suggestion could be to create a “training cocktail” to combine more than one shorter duration course into one package that lasts at least one hour. Say, combining three twenty-minute courses into one package, for which a firefighter would earn one point for completing all three.
 
Can a firefighter take every Training Course in the catalog to earn points? Based on the Comptroller’s legal opinion, all Training Courses must be approved by the chief or board of fire commissioners. Therefore, a list of approved courses should be maintained and made available so firefighters know which courses can be taken to earn points. Since we don’t have experience with all of the training platforms, we don’t know how access to classes can be controlled internally. We are aware of at least one provider that gives administrative control to a chief or training officer that can activate only certain courses that are applicable to the operations of the specific department. If that is not available, having a pre-approved list of Training Courses is a good control to ensure firefighters are taking training that is applicable to the fire department operations.
 
Can points be awarded for training taken with another agency or employer? Generally, only activities of the fire department are eligible to earn points. Notable exceptions would be points for periods of line of duty disability or military leave. Otherwise, points can only be earned by an individual for activities of the fire department which would be covered by VFBL. Therefore, it would seem the best practice is not to award points for training taken with another agency or employer, even if that other organization uses the same e-training platform as the fire department. If that is the case, a suggestion for that firefighter would be to check with the other employer or agency to see if they would accept the training taken with the fire department.
 
Do you have other questions about online self-directed Training Courses? Leave a comment or contact us with questions.