Saturday, April 27, 2013

During a recent public seminar a participant brought up an IRS audit their company had experienced and one of the adjustments made by the auditor. The IRS had made a significant adjustment regarding company provided uniforms. The company provided logo wear to their employees consisting of polo or dress shirts with the company logo.

Many companies now are requiring uniforms be worn by their employees. This goes a long way in eliminating workplace dress code issues. In addition the UniFirst Corporation did a survey to determine the top 10 reasons companies require uniforms. The results in order were:

1. Create an attractive business image

2. Promote brand

3. Free advertising

4. Protect workers

5. Improve security

6. Prevent product cross contamination

7. Create team spirit

8. Employee benefit

9. Improve customer relationships

10. Promote company pride

http://www.providencejournal.com/business/press-releases/20130321-top-10-benefits-of-employee-uniforms.ece

So the question is "Are uniforms provided by the company taxable income to the employee?" The IRC code states that an employee uniform and associated maintenance is not taxable if it meets two conditions:

1. The uniform is required by the employer.

2. The uniform cannot be wearable as street cloths.

There are three traditional avenues employers take when providing uniforms. Some companies will acquire the uniform, provide it to the employee and pay for all maintenance. If the uniform meets the two requirements then these costs are not taxable income to the employee.

Some companies elect to provide the employee with a fixed monthly amount to allow the employee to purchase their uniforms and pay for the maintenance. Others provide the uniform but pay a fixed monthly amount to pay for the maintenance only. Fixed monthly payments are taxable income to the employee.

Adjustments are now being reported if the "uniform" consists only of a polo shirt, even though the polo shirt may have the company logo. If the company does not "require" all employees to wear the "uniform" this can have an impact on the decision. In other words, logo wear to be worn on casual Friday will not qualify.

It is recommended employers be able to show clearly how the uniforms provided are required (and why), and that they are not normally worn outside of the work environment. The company mentioned at the beginning provided logo wear for their employee's. They then gave the employee's $25 per month for the maintenance. The IRS ruled that the monthly cash payment was taxable income, reclassified uniform payments are subject to FIT, FICA and FUTA assessment.

If you have questions regarding the taxation of employer provided benefits contact gary@illuminaregroupinc.com or go to www.IlluminareGroupInc.com and let us know through the "contact" section.

Remember you can't start over, but you can start now.