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Troy mayor: IRS to tax retirement money that city's volunteer firefighters haven't earned yet

By and David Komer online producer
Published  January 16, 2023 10:54pm EST
Troy
FOX 2 Detroit

Volunteer Troy firefighters retirement plan faces challenge by IRS

The mayor says suddenly Washington DC wants to tax money the first responders have not even cashed out yet. The reason for the move, is because their eventual payout after retirement is simply too much to be tax exempt.

TROY, Mich. (FOX 2) - There are over 100 volunteer firefighters in Troy and although they don't get paid - they have the option to cash out with an incentive program when they retire. Now the IRS is demanding changes to the program - and not everyone is happy.

"I know everybody hates the IRS, and right now I do too," said Mayor Ethan Baker.

Baker says the City of Troy has long fought to keep the IRS away from a 43-year-old incentive program that looks after volunteer firefighters many who have served over decades.

"Those firefighters mean everything to our city," Baker said. "I’ve talked about them at length for as long as I’ve been mayor and on the city council. They are the heartbeat of our community as far as far as it goes with public safety."

The mayor says suddenly Washington DC wants to tax money the first responders have not even cashed out yet.  The reason for the move, is because their eventual payout after retirement is simply too much to be tax-exempt.

"So the IRS said, we’ve looked into this. We’re not going to let you do this anymore," the mayor said. "(They said) your options are to start taxing these volunteer firefighters as if they are receiving the income now when they vest, or change the plan and they recommend a change of the plan.

"So we are in the process of changing the plan. We don’t know exactly what that looks like right now."

Troy only has 12 full-time firefighters. The rest are on-call only. Current retirees and beneficiaries will also be impacted by the changes.

So here is what will happen now:

"They’re going to get payouts based on what they have vested so far," Baker said. "The city has got about $14 million dollars in the volunteer firefighters' incentive trust plan already put away that has been accumulating for future retirees. We are going to have to use all of that to pay them out, plus the City’s going to have to pay about $5 million from its general fund to make these guys and girls whole, and we have to create a new plan."

As for that new, long-term plan, that will be figured out heading into the spring.

"We’re going to spend the next three months trying to come up with the best plan to keep those firefighters happy, to keep our city functioning properly from a financial standpoint," Baker said. "And to hopefully move forward in a good direction."