Service Awards Now Tax-Free Up to $1,000: Clarity for Volunteer Firefighters and EMS

This bill, nicknamed the “No Tax on LOSAP Act,” is a straightforward piece of legislation designed to make sure that the financial recognition given to volunteers, like those in fire and emergency medical services, actually goes into their pockets tax-free. It does two main things: First, it dramatically raises the amount of money from a Length of Service Award Program (LOSAP) that can be excluded from federal income tax, jumping the limit from a laughably low $50 to a much more meaningful $1,000 (SEC. 2). Second, it clears up any confusion by explicitly stating that payments from these LOSAPs—whether it’s a direct award or a reimbursement—count as a "qualified payment" for that tax exclusion (SEC. 3).

The $50 Problem Solved: Real Recognition for Real Service

Think of a LOSAP as a volunteer retirement plan, often used by smaller municipalities to thank their dedicated volunteer firefighters and EMS workers who put in years of service. Under the old rules, if you were a volunteer who finally got your award—say, $5,000 after 20 years—only the first $50 was shielded from taxes. The rest was treated as taxable income. This bill fixes that by increasing the exclusion limit to $1,000. For the average volunteer who might receive an annual or lump-sum payment, this means up to $1,000 of that money is now completely tax-free.

For example, if a volunteer firefighter in a small town receives a $1,500 annual award for their service, they were previously paying taxes on $1,450 of that money. Now, under the No Tax on LOSAP Act, they will only pay taxes on $500. That’s a significant boost in the real-world value of their award, putting more money directly back into the hands of the people who are often sacrificing their nights and weekends to serve their communities. This change is immediate, applying to any awards given out after the bill becomes law.

Cutting Through the Tax Code Confusion

Section 3 of the bill adds clarity where the tax code was previously fuzzy. It ensures that payments from LOSAPs are definitively included in the definition of "qualified payments" under Section 139B(c)(2)(A) of the tax code. Why is this important? Because without this explicit mention, there could be administrative headaches or legal challenges over whether a specific LOSAP payment—especially if structured as a reimbursement for expenses—actually qualifies for the tax break. This language removes that ambiguity, providing certainty for both the volunteers receiving the awards and the local governments administering the programs. It’s a clean-up measure that ensures the $1,000 exclusion actually works as intended, across the board. The impact is low-concern because this bill is essentially a technical correction and an overdue increase that benefits long-serving community volunteers without creating new burdens.