By Dustin Pothour
It’s tax season. While everyone has reason to be excited about taxes, employees who receive clothing and/or uniforms from the University may have extra cause for celebration. Business and Financial Services recently announced new instructions outlining how uniforms and clothing provided by Colorado State University may affect your W-2.
Depending on certain circumstances, money spent by the University on an employee’s uniform or clothing can actually be considered taxable income that must be recorded on that employee’s wage and tax statement.
Generally, clothing expenditures not considered taxable fall under one of two definitions: Working condition fringe or de minimis fringe. Working condition fringe entails a benefit provided so an employee can perform their job and one which may be deductible by the employee. Second, de minimis fringe entails a benefit of value so small and occurrences so infrequent, accounting for it proves impractical or unreasonable. The problem is, work uniforms and allowances for the care and upkeep that clothing/footwear may or may not fall under these definitions.
To confuse things further, many positions require employees wear distinctive clothing or certain safety equipment. However, these cases do not always qualify as a non-taxable fringe benefit. No specific statutory guidance is provided by the IRS on clothing and uniforms thus employers must apply the “reasonable person” approach when deciding if the benefit is taxable or non-taxable.
There’s a policy for that
To help address this ambiguity, the Colorado State University Financial Procedure 2-21 (busfin.colostate.edu/Forms/FRP/Expense_Revenues/FPI_2-21_Uniforms_and_Clothing.pdf) CSU-provided Uniforms and Clothing looks to define taxable uniforms. Here, a statement outlines three conditions, of which at least one must be met, to make an expenditure non-taxable.
First, the employee must wear the clothes as a condition of employment, and the clothes are not suitable for everyday wear. The example included a law enforcement officer’s work clothes, and their upkeep would be excludable from income as it is not suitable for everyday wear; however, a T-shirt provided to the officer would be taxable because it is suited for everyday wear.
Second, the clothing is provided infrequently and small in value. This example details providing a student worker a shirt to greet people during orientation as de minimis fringe and non-taxable.
Third, required protective clothing considered non-taxable may include rubber boots, shoe covers, or hearing protection, while it may exclude items like work boots, cold weather gear, shirts, and/or pants. If one of these three conditions is not met, the value of the clothing will be imputed on the employee’s W-2.
If all this seems confusing, well, it is. No clear guidelines or rules exist when it comes to these cases and questions, it is up to the University to go by the guidelines and apply the IRS tax laws as best they can. If you think this change may impact you or your department and have questions, please reach out to your CSU human resources liaison.