MS 236: Volunteer Allowances and Federal Income Tax

Date: 04/15/97 (v. 2)
Office: Volunteer and Staff Payroll Services (OPBF/F/VSPS)
Supersedes: MS 236 10/28/94, 7/13/83, 11/9/82

Table of Contents
Attachments


1.0	Purpose
2.0	Federal Income tax Treatment of Volunteer Allowances
	2.1	Identifying Taxable Income
	2.2	Post's Role in Providing Volunteers with Federal Income Tax Information
	2.3	Post's Role in Notifying OPBF/F/VSPS of the Taxable Portion of the Volunteer Living Allowance
3.0	Use of Readjustment Allowance for Payment of Income Tax
	3.1	Policy
	3.2	Procedures
	3.2	Volunteer Request
		3.2.2	Charging the Withdrawal
		3.2.3	Processing the Request
		3.2.4	Paying the Internal Revenue Service

Attachments

Attachment A	Sample "Memorandum to Volunteers" (Including Notification to OPBF/ F/VSPS) of Taxable Amount of Living Allowance
Attachment B	Form PC-1518, "Authorization to Withdraw from Readjustment Allowance Account for Payments of Federal Income Tax"
Attachment C	Form PC-804, "List of Payments Charged to the Peace Corps Readjustment Allowance Account"

1.0 Purpose

This Manual Section provides guidelines for Volunteers and Trainees in filing Federal income tax returns, and authorizes Country Directors, in accordance with these guidelines, to determine what portion of the Volunteer Living Allowance constitutes taxable income.

NOTE: For more detailed information on completing Federal income tax returns, refer to the current "Federal Income Tax Guide for Peace Corps Trainees, Volunteers, and Former Volunteers," which Volunteer and Staff Payroll Services (OPBF/F/VSPS) updates and distributes annually.

2.0 Federal Income tax Treatment of Volunteer Allowances

Certain allowances paid to Volunteers and Trainees are subject to Federal income tax. Country Directors are responsible for identifying the portion of the Volunteer Living Allowance that is subject to Federal income tax and for providing detailed information on taxable amounts to Volunteers and OPBF/F/VSPS.

2.1 Identifying Taxable Income

Country Directors are authorized to apportion the Volunteer Living Allowance among the ten categories set forth in MS 221, "Volunteer Allowances." Income in five of these categories is subject to Federal income tax: Domestic Help, Clothing, Recreation and Entertainment, Transportation, and Incidental Expenses. The actual percentage of taxable Living Allowance varies world-wide, as the Volunteer Living Allowances and their apportionments differ from post to post, based on the individual country economies.

In addition, 100% of Annual leave Allowance, Trainee Walk-around Allowance (whether stateside, in-country, or third-country), and Special Leave Allowance is taxable.

The Settling-in Allowance, Day Care Allowance, and Schooling Allowance are not taxable. Also, the following allowances, when provided in connection with travel away from post, are not subject to Federal income tax:

Travel (En Route) Allowance,
Administrative/Medical Hold, Medevac Daily Allowances,
Emergency Leave Allowance,
Authorized Extraordinary Travel Allowance, and
Transportation and Daily Allowances provided to a current Volunteer to permit him or her to assist at a staging in the United States, or as a trainer in a training program, at the request of Peace Corps.

Refer to MS 221, "Volunteer Allowances," for definitions and policies regarding the above-mentioned allowances.

2.2 Post's Role in Providing Volunteers with Federal Income Tax Information

At the beginning and completion of Volunteer service, and when the Living Allowance is adjusted, the Country Director will inform Volunteers which portions of the Living Allowance are subject to Federal income tax.

Also, at the end of the calendar year, the Country Director will supply each Volunteer with a Federal Income Tax Form 1040 and instructions, the W-2 form and "Tax Guide" sent to post by OPBF/F/VSPS, and a "Memorandum to Volunteers" specifying the taxable amounts of their Living Allowance. This memorandum must include the monthly Living Allowance amount in U. S. Dollars, the dates and amounts of any changes in the Allowance and taxable portion, and other relevant details as shown in Attachment A.

2.3 Post's Role in Notifying OPBF/F/VSPS of the Taxable Portion of the Volunteer Living Allowance

At the end of each calendar year, the Country Director will forward a copy of the "Memorandum to Volunteers" (see Attachment A) to OPBF/F/VSPS to notify Headquarters of the taxable portion of the Living Allowance paid to Volunteers during that year. This copy may be sent by electronic mail, facsimile, diplomatic pouch, or cable.

3.0 Use of Readjustment Allowance for Payment of Income Tax

3.1 Policy

Country Directors may approve Volunteer requests for withdrawal of up to $350 from the Readjustment Allowance for payment of Federal income tax. Withdrawal of more than $350 requires authorization from OPBF/F/VSPS. Volunteer and Staff Payroll Services will certify by electronic mail, facsimile, or cable whether adequate funds exist for such a withdrawal.

3.2 Procedures

3.2 l Volunteer Request

A Volunteer requesting a withdrawal from his or her Readjustment Allowance account for payment of Federal income tax should submit Form PC-1518, "Authorization to Withdraw from Readjustment Allowance Account for Payment of Federal Income Tax" (see Attachment B) together with the signed original of the tax return (Form 1040) to the Country Director. (See also paragraph 3.2.4 below.)

3.2.2 Charging the Withdrawal

The Country Director will charge withdrawals to the Readjustment Allowance account 11X6016 and report them to OPBF/F/VSPS on Form PC-804 (see Attachment C) following the guidelines in MS 223, "Volunteer/Trainee Readjustment Allowance."

NOTE: Forms PC-1518, "Authorization to Withdraw from Readjustment Allowance Account for Payment of Federal Income Tax" and PC-804, "Monthly Report, List of Payments Charged to the Peace Corps Readjustment Allowance Account," are available electronically as Attachments B and C and are to be reproduced locally.

3.2.3 Processing the Request

The Country Director will submit a voucher (OF-206, "Purchase Order, Receiving Report and Voucher") to the fiscal support staff, attaching a photocopy of the Volunteer's original authorization form as support for the voucher, and will request that the check( s) be made payable to the Internal Revenue Service and forwarded to the Country Director.

NOTE: The Country Director will safeguard the Volunteer's original authorization form (PC-1518) and completed tax forms pending the issuance of the check.

For withdrawals of more than $350, attach a copy of the authorization from OPBF/F/VSPS (see 3.1 above).
For multiple payment requests, use one voucher supported by a multiple payment listing.

3.2.4 Paying the Internal Revenue Service

The Country Director will mail the Volunteer's Federal 1040 income tax return with the check via air pouch to the appropriate office of the Internal Revenue Service, as indicated by the Volunteer on the withdrawal authorization form. Each check should include the statement, "Income Tax for: Volunteer Name and Social Security Number." DO NOT SEND THE TAX RETURN, PAYMENT, OR FORM PC-1518 TO OPBF/F/VSPS.