Volunteer Fire Tax Exclusion

Volunteer Fire Fighter


The National Volunteer Fire Council in December of 2020.  There have been revisions to this law over the past couple years.     The Wisconsin Volunteer Fire Association sent out the email highlighted below asked for corrections to the 2021 W-2 on wages up to $600, or up to $50 a month.   In reviewing the issue, we found the tax laws related to expense reimbursements, ‘qualified payments’ or ‘deferred compensation’ that could be exempt from FICA (Social Security, Medicare, Federal and State taxes).   

Civic Systems employees are not tax experts.   Each municipality should consult with their ‘tax advisor’ or ‘municipal attorney’ on eligible wages and/or expenses with respect to its volunteer fire department status.  Click here to review a full IRS letter that reviews this issue.   Any questions regarding the letter or VRIPA can be directed to Dave Finger (dave@nvfc.org), NVFC Chief of legislative and regulatory affairs.

Qualified payment are not gross wages.  Length of Service for a bona fide volunteer fire department is considered a qualified payment.   Expenses reimbursement that could be considered eligible are: equipment; food; covered milage; food; gifts or nominal incidentals that are not normally covered by the municipality. 

The instructions below the article will help to setup 2 new pay codes and one summarization code to help  process wages and/or expense reimbursements.  The key component to this issue is the total annual amount for both pay code may not exceed $600. 


Federal Tax Exemption

You will probably recall that our association and the National Volunteer Fire Council worked hard for several years to get an exclusion from federal income tax of a portion of the fire department wages that you earn. With income tax season once more upon us, it seems like a good time to remind everyone to take advantage of what is known as the section 139B exclusion to exclude up to $600 of fire department wages from federal income tax. In order to do so, the W-2 form preparer must determine eligibility and prepare your W-2 form accordingly. This exclusion should be reflected by reducing the amount shown in Box 1 (Wages, tips, other comp.) by the eligible amount of the exclusion, up to $600. Also, no Social Security or Medicare tax should be withheld from the excluded amount.

Because this is a federal-only exemption, the full amount of your fire department wages should be reported in Box 16 (State wages, tips, etc.). In other words, Boxes 1 and 16 will not match. Also, entering “139B” and the amount excluded in Box 14 will help the IRS understand the reason for the difference.


This is a hard won and valuable benefit.

Don’t miss out on it.


  1. Create a summarization pay code in Payroll - Organization – Pay Codes.
  1. Figure out which pay code number is available.  This is a Gross or Expense pay and should be prior to the deduction pay codes.  Suggest in the 10-30 range, depending on your municipal setup.  This example will use pay code 18, and the necessary corresponding sub codes.
  2. Click the ‘New’ button.  
  3. Enter the new Pay code, and keep the sub code as ‘00’
  4. Enter a Title – “Volunteer Fire – Tax Exempt”
  5. Suggested Abbreviated title  - ‘Fire No Tx’
  6. Set the Type  - ‘Gross Miscellaneous’
  7. Uncheck the box for ‘Allow employer options’
  8. Select the Save button. 
  9. Click ‘Yes’ to ‘Okay to add record?’. (See the example below)


  1. Create a Tax exempt wages sub-code.
  1. Change to Edit mode under Payroll – Organization – Pay Codes. 
  2. Find the new pay code that was created and select Copy. 
  3. Enter in the same pay code number and sub code number of 1.


  1. Change the Title to Volunteer Fire – ‘Length of Service’
  2. Change the Abbreviated title to – ‘Length Serv’
  3. Uncheck the ‘Use as summarization pay code’


  1. Change to the ‘Employee’ tab.
  1. Set the Amount/Rate/Percent Type to ‘Amount’ and Amount to zero (0).
  2. Add the Volunteer Fire department wage account number to GL Account or use a standard account masking (as shown in this example).
  3. Verify the Monthly period numbers are set for the volunteer fire pay schedule
  4. Check the boxes under ‘Allow calculation with these check types’ – Manual; Payout; Supplemental.


  1. Verify that the ‘Used in Calculation’ sub tab on the Employee tax is blank or only has Worker Comp and/or SUTA.  This should be determined by the client or the client auditors.


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  1. Select the W-2/1099 tab
  1. Add a brief title to W-2 other description (Box 14) – ‘Vol Fire Serv’
  2. Check the box to include amounts


  1. Create a new pay code – sub code as shown for Qualified Expenses
  1. Mirror steps 2 a-c to copy to a new sub code
  2. Change the Titles and Type.
  1. Change the title – ‘Volunteer Fire – Expense Reimb’
  2. Change the Abbreviated title – ‘Fir Exp NT’
  3. Set the ‘Type’ of ‘Expense’.


  1. Change the W2/1099 description – Vol Fire 139b


  1.  Add the appropriate pay code(s) to the employees.  Note:  The total over both pay code may NOT exceed $600 on an annual basis.