Giving Credit Where Credit Is Due: First Responders Get A Break On Local Taxes

Contributed by Daniel C. Conlon

Every day, firefighters and emergency medical service (EMS) volunteers across Pennsylvania provide essential services to keep the public safe—and they do it all for free.  Unfortunately, volunteer fire companies and EMS agencies have seen a decline in their ranks while the number of emergency service calls has increased.  For example, in 1976, Pennsylvania boasted a total of 300,000 volunteer firefighters.  Today, that number has dwindled to about 50,000, or one-sixth of the number in 1976.

In an effort to spur an increase in volunteers, Governor Tom Wolf signed into law HB1683 (Act 172 of 2016) on November 21, 2016. The law authorizes municipalities to grant local tax credits to firefighters and EMS volunteers.  Specifically, Act 172 allows tax credits on a volunteer’s real estate and earned income taxes.

Act 172 became effective on January 20th of this year and Boroughs can start to take advantage of these tax credits immediately.  The following frequently asked questions can help Borough administrators and council members understand how to implement Act 172.

Q.  Can all volunteers at a volunteer fire company or EMS agency claim a tax credit on real estate and earned income taxes?

A.  No. Only Active Volunteers who live in a municipality that has enacted an ordinance allowing earned income and real estate tax credits may claim these credits.

Q. Who is an “Active Volunteer”?

A.  An Active Volunteer is a volunteer who has accomplished the activities required to qualify as an Active Volunteer during one calendar year. While Act 172 allows a Borough Council to determine what activities a volunteer must accomplish to qualify as an Active Volunteer , Council must consider the following activities:  (1)  the number of emergency calls to which a volunteer responds, (2) the level of training and participation in formal training and drills for a volunteer, (3)  the total amount of time expended by a volunteer on administrative and other support services, including fundraising and facility or equipment maintenance, and (4)  the involvement in other events or projects that aid the financial viability, emergency response or operational readiness of a volunteer fire company or a nonprofit emergency medical services agency.

Q.  How much of a tax credit can a Borough allow on an Active Volunteer’s earned income?

A.  Act 172 authorizes a tax credit on an Active Volunteer’s earned income, but does not set a limit on the amount of credit allowed. Borough Council should deliberate the amount it believes will benefit volunteers that reside within its borders.

Q.  How much of a tax credit can a Borough allow on an Active Volunteer’s real estate taxes

A.  According to Act 172, a Borough can grant up to a 20% credit on a volunteer’s real estate taxes for a residence that is owned and occupied by the volunteer.

Q.  Can a Borough offer credits on both earned income and real estate taxes, or must it choose one?

A.  A Borough can offer tax credits on both an Active Volunteer’s earned income and real estate taxes. It does not need to choose between the two. In most instances, it makes sense for a Borough to grant both credits because some volunteers may not own property or some may own property but do not have income. Ultimately, it is up to Borough Council to decide what tax credits will benefit volunteers that reside within its borders.

Q.  Can an Active Volunteer claim the authorized tax credit on his (or her) earned income even though the volunteer files a joint return?

A.  Yes. Act 172 states that Boroughs may allow volunteers to claim the tax credit on a joint earned income tax return.

Q.  Can Council limit the tax credits to individuals who volunteer at a fire company within the Borough’s corporate borders?

A.  No. Tax credits are only available to residents of a municipality that has enacted an ordinance allowing the tax credits. If a resident volunteers in a neighboring municipality, that resident may still claim the tax credit authorized by the municipality in which he/she lives.

Q.  How will an Active Volunteer receive a tax credit on his/her earned income and real estate taxes?

A.  This may be the trickiest part of Act 172 because the statute does not outline the procedure for giving a tax credit. Borough Council should consult its Solicitor for advice on drafting a well-thought ordinance that will take into account the process for collecting taxes in the Borough.  A solid understanding on the process for collecting taxes will allow the Borough to decide when and how to give the tax credits.  Every Borough may collect taxes differently, so in this case, one size does not fit all.

Q.  Does Borough Council need to have a special hearing before adopting an ordinance to allow the tax credits?

A.  Yes, Act 172 requires a Borough to advertise a proposed ordinance and hold a special hearing at least thirty (30) days prior to its enactment.

For additional information, contact Daniel Conlon.