It has just recently come to our attention that the National Volunteer Fire Council (NVFC) sought clarification from the Internal Revenue Service (IRS) about the application of the Volunteer Responder Incentive Protection Act (VRIPA) to LOSAP. Here is a link to the article on the NVFC website, which summarizes the response, as well as a link to the actual response from the IRS:
On December 21, 2020, Congress made VRIPA a permanent part of the Internal Revenue Code. The language of this Act is found in Section 139B of the Code. In summary, it allows a volunteer to exclude from gross taxable income any "qualified payments" received from a State or political subdivision for services rendered as a member of a volunteer emergency response organization. The amount of the qualified payments that can be excluded from gross taxable income for any taxable year cannot exceed $50 multiplied by the number of months during such taxable year that the taxpayer performed the services. For example, if an individual served as a volunteer firefighter for all 12 months of calendar year 2021, that individual could exclude from gross taxable income up to $600 (12 x $50) of any qualified payments received during 2021.
The important detail for the purposes of this post is that the service must be performed, and the payment must be received, during the same calendar year.
In response to the question about the applicability of VRIPA to LOSAP, the IRS letter states:
Payments under a length of service award plan for a taxable year are generally provided for qualified services performed prior to the taxable year.
Although the IRS response did not include a definite statement that payments from a LOSAP do not qualify for exclusion from gross income under VRIPA, it clarified that generally speaking payments from a LOSAP are received in a tax year after the year in which the service is rendered. Here in New York State, LOSAP is administered on a calendar year. As such, this statement made by the IRS is always true - when a volunteer firefighter performs service and earns 50 points during a calendar year, that volunteer receives the cash benefit(s) for that service in a future tax year (sometimes many tax years into the future). In other states it could be possible (though we would think still an unusual circumstance) and the IRS response leaves that possibility open.
Therefore, payments from a New York State LOSAP cannot be excluded from federal gross income under VRIPA.
This blog post is not intended to provide specific tax advice, and nothing contained herein constitutes investment, legal, tax or other advice. Individuals reading this post are urged to consult their own tax, legal, and other advisors regarding their personal circumstances and the consequences of participation in any LOSAP.