Author: Financial Management Resource Bureau
The DLS Financial Management Resource Bureau (formerly the Technical Assistance Bureau) has offered financial management advice to municipalities across the state for over 30 years. To share this guidance more broadly, we thought it would be helpful to highlight some of our more useful, timely, or interesting recommendations for the benefit of City & Town readers.
Massachusetts offers two tax work-off programs for qualified homeowners to reduce their property tax bill by up to $1,500 by volunteering for the community in which they live. The Senior Citizen Tax Work-Off is available to senior citizens 60 years of age or older, while the Veterans Tax Work-Off is offered to any veteran property owner.
The board of selectmen, town council or mayor with the approval of the city council and approval by the municipality’s legislative body may establish a work-off program by accepting M.G.L. c. 59, § 5K for seniors or M.G.L. c 59, § 5N for veterans. Municipalities choosing to accept one or both statues should establish written work-off program requirements such as income eligibility, hours, and skills necessary. The program must also be consistent with the community’s bylaws or ordinances, as well as state and federal regulations. This article offers some pointers, general guidance, and resources for implementing a successful work off program.
Workers as Employees: Work-off volunteers are assigned, directed, and supervised by the municipality and therefore are considered employees of the municipality while participating in the program. The city or town should take this into account when establishing procedures for the application, interview, and placement processes. For example, a municipality may want to complete a CORI and reference checks for the volunteer applicant to be consistent with employee onboarding policies.
Treatment of Earned Amounts: A common issue found throughout the state is how municipalities treat the earned amounts of program workers. For state income tax purposes, the earned property tax credit is not considered income. However, the IRS has ruled that the credit, in the form of an abatement, are wages subject to federal income tax and Medicare withholdings. As such, abatements earned through the work-off program cannot be processed with other property abatements or exemptions and applied directly to the tax bill. Instead, to comply with federal regulations, the gross amount earned by a program volunteer must be processed through the municipality’s payroll system to generate and report proper withholdings and to issue a Form W-2 at year end. Non-compliance with federal regulations can result in the IRS assessing significant fines to the municipality.
Funding the Programs: Work-off program expenses must be budgeted in the allowance for abatements and exemptions, i.e. overlay account, rather than through departmental appropriations. The expenses can include the municipality’s share of federal Medicare taxes. Therefore, as part of the budget development process, the amounts needed to operate the programs should be considered. The assessors should factor these amounts into the amount of overlay being raised each year.
Processing and Applying the Abatement: Abatements earned through a tax work-off program must be applied to the fiscal year actual tax bill. Therefore, the amount of the abatement must be certified by the supervising official to the assessor for processing before the fiscal year’s actual tax commitment. To do this, communities that issue the first actual bill as of January 1 conclude their program’s cycle near the end of the calendar year. Communities that issue the actual bills as of October 1 have a cutoff date at the end of the summer.
The assessors commit the full tax for the year and process the gross certified amount for the volunteer services as an abatement charged against the overlay account. However, the volunteer’s actual tax bill should only have a credit for the amount earned net of the federal withholdings. The difference should be transferred by the accounting official to an account for remittance to the IRS. In no case should a check be issued to the volunteer.
Municipalities with Regional School Districts: Participation in the work-off program only allows volunteers to earn property tax credits in the city or town for which they have a property tax obligation. Because regional school districts are entities separate from the city or town, service to a district is not eligible for the program. Volunteers may receive credit if the school is operated by the municipality as a department and is participating in the program.
Sale of Property: Tax credits earned through a work-off program can only be redeemed as an abatement on a property tax bill. If a program volunteer sells their property during the same fiscal year as their earned abatement, the city or town cannot issue the tax credit in any other payment form, such as a check to the taxpayer. It is the obligation of the volunteer, not the municipality, to ensure the tax reduction is credited to them at the time of closing.
As the fiscal year approaches the second quarter and the current year’s volunteer’s complete their programs, this is a natural point for officials to review their municipality’s work-off program policies to correct areas of noncompliance or enhance operational procedures in preparation for a new volunteer cycle. Further legal guidance for senior and veteran tax work-off programs can be found in the DLS Information Guideline Release 2021-20.
Helpful Resources
City & Town is brought to you by:
Editor: Dan Bertrand
Editorial Board: Marcia Bohinc, Linda Bradley, Sean Cronin, Emily Izzo, Lisa Krzywicki and Tony Rassias
| Date published: | September 15, 2022 |
|---|