Town of Berlin Connecticut Not Excluding Nontaxable Income on W-2s Issued to Volunteer Firefighters and EMS Personnel?!?!

In 2002 Congressman Larson introduced the Volunteer Responder Incentive Protection Act (H.R. 943/S. 1466), which was subsequently enacted into law under the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142). In that Act there was a provision for volunteer firefighters and EMS (Emergency Medical Services) personnel to receive an exclusion from taxable income of up to $360 of qualified payments. That income was excludable not only from income tax but employment taxes as well.

It has come to my attention that the Town of Berlin in Connecticut may have been including in the W-2s of volunteer firefighters and emergency medical responders payments that should have been excluded from taxable income. In addition, it is also my understanding that the Town of Berlin may have been withholding income and employment taxes on this excludable income as well.

I have brought this matter to the attention of the appropriate officials of Berlin; however, their response has been essentially that the Town of Berlin has “no way of knowing” whether the volunteers are actually responding to calls each month, and therefore it is unable to exempt the portion of applicable income.

I found their answer unsatisfactory.  Did it not occur to the Town to merely request from the volunteers a log of their attendance? And is not the Town of Berlin required to record the attendance of employees as well as volunteers in order to compute their respective compensation? Do taxpayers just pay volunteers our tax dollars without monitoring whether or not they are showing up and earning such monies?  Does not the Act introduced by Congressman John Larson require the Town of Berlin to record such attendance in order for the firefighters to obtain this tax benefit? If not, what was the purpose of Congressman Larson’s Act if the town is allowed to reply that it is unable or unwilling to record the monthly participation of volunteers?

Because of the Town of Berlin’s supposed inability to record the monthly performance of volunteer firefighters and emergency medical responders, such individuals may be paying income and employment taxes on income that is nontaxable.  The W-2 form issued by the Town apparently includes the nontaxable income as well as the taxable income on these volunteers W-2 forms, and fails to exclude and report separately the nontaxable amount.  On their W-2 forms, that nontaxable income should have been excluded from boxes 1, 3, and 5, and taxes should not have been withheld on that excluded income and not included in boxes 2, 4, 6. The amount of the excluded income should have been reported in box 14. The Town of Berlin’s failure to do so defeats the original purpose of Congressman Larson’s Act: to exclude certain income from taxation for volunteer firefighters and EMS personnel.

When I emailed the Town of Berlin about this matter on April 6, 2011, its reply stated that the payroll coordinator placed a call in response to my email to someone at the IRS office in Virginia.  It further stated that the IRS informed the Town of Berlin “that the W2 should be used as presented so that the income and related taxes withheld would both be reported.” In essence, the Twon of Berlin appears to be refusing to acknowledge any error on its part in the preparation of its W-2s to volunteer firefighters and emergency medical responders, even though payments qualifying as exempt to taxation under Congressman Larson’s Act may have been reported as taxable income, with income and employment taxes being withheld.

The email ended as follows: “This will not be a problem in the future, since this exemption expired 12/31/10.”  However, this may indeed be a problem in the future since the IAFC (International Association of Fire Chiefs) has been working with congressional supporters to gain passage of legislation that will extend this benefit to 2015.  Any dismissive attitude on the part of town officials over the significance of this tax benefit may fail to underestimate its potential impact on individual taxpayers:  that is, over the three years that this exclusion has been in existence, the failure of municipalities to properly report nontaxable income to its volunteers may have resulted in additional taxes of $400 to each volunteer.  Although $400 may not appear to be significant to some, it may be material dollars for some of those volunteer responders who are struggling to make ends meet during these dire economic times.

If our tax dollars are being paid out to volunteers, there certainly should be an accounting of whether or not they are earning these monies.  And if they are earning these monies, then there should be an accounting exempting them from taxation where legislated.

In my opinion, the appropriate response of the Town of Berlin to its failure to record the monthly performance of its volunteer firefighters or EMS personnel would have been a public notice offering to issue corrected W-2s for the years of 2008, 2009, and 2010 to the affected individuals upon the receipt of their monthly performance logs.  I suspect that the volunteers would have been most willing and able to provide the needed information if they were so informed.  Any town’s failure to correct erroneously filed W-2 forms is a violation of Federal law, exposing it to civil penalties.  To merely excuse one’s failure to properly account for any nontaxable income by simply asserting an inability to do so is irrelevant:  employers are required by law to maintain adequate enough records to substantiate all expenses, particularly those pertaining to compensation paid to employees.

The irony in all of this is that Berlin, Connecticut is in the first district of Connecticut, which Congressman John Larson, the originator of this beneficial exclusion for volunteer responders, represents in the House of Representatives. 

William Brighenti, Certified Public Accountant

Accountants CPA Hartford, Connecticut, LLC


About Connecticut Politics

William Brighenti is a Certified Public Accountant and Certified QuickBooks ProAdvisor, who operates a public accounting firm, Accountants CPA Hartford, Connecticut, LLC. Bill began his career in public accounting over thirty years ago. He provides a variety of accounting, tax, and QuickBooks consulting services to individuals and business across a wide spectrum of industries. Bill writes an accounting, tax, and QuickBooks blog under the penname, "The Barefoot Accountant". William Brighenti created the blog, Connecticut Politics, because of the need for a voice to cry out loud--Vox Clamantis--explaining the reasons for the terrible state of the economy in the United States as well as urging change and reform before the United States becomes a third world country.
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