Per IRS code regulations, the value of employer-provided apparel (including items donated by outside parties, such as vendors or other donors) is taxable to an employee unless both of the following two conditions are met:
1. The employee must wear the clothing as a condition of employment; and,
2. The clothing is not suitable for everyday wear.
Any benefit deemed taxable to an employee must be included in the employee's taxable income reported on Form W-2. Accordingly, we have created a new earnings code to allow units to post the value of these benefits to individual employee earnings in Banner and trigger the required tax withholdings/reporting.
The IRS has recently begun auditing colleges and universities for compliance in this area. To facilitate compliance, USNH has chosen to exclude apparel provided to student workers from reporting requirements at this time. Accordingly, the value of apparel provided to all non-student employees will be subject to taxation unless specifically excluded in Section D below.
All clothing is deemed a taxable fringe benefit to an employee unless the value of the clothing is de minimis (defined as $75 or less per employee per item) or meets the IRS conditions for exclusion as specified in Section D.
This taxable fringe benefit is subject to all applicable taxes at the time the compensation is added to the employee's wage history. This includes FICA-OASDI tax, FICA-Medicare tax, Additional Medicare tax (if applicable) and Federal Withholding taxes.
The reporting year for this fringe benefit will be December 1 through November 30, similar to the term for taxation of employer-provided vehicles, etc. The taxable fringe benefit reporting is due to the applicable Campus Payroll office by the 10th of each month. The value of the taxable fringe benefit will be added to the employee's reportable compensation and the tax amount will be withheld from the employee's payroll wages in the month of the due date of its communication to Campus Payroll. For example, values reported through December 10 will be reported as income in December of the current tax year, and values reported December 11-31 will be reported in January of the next tax year.
D. Specific Exceptions from Taxability
The following major categories of apparel have been determined by IRS to be working condition fringe benefits and nontaxable:
1. Uniforms required to be worn in the performance of an employee's assigned job duties that are not adaptable to general usage as ordinary clothing.
The IRS specifically excludes uniforms for law enforcement officials, firefighters and healthcare workers from taxation.
2. Protective or safety apparel that is worn over personal attire to protect the employee or to maintain a sanitary environment. Examples include, but are not limited to: face masks, safety glasses, heat-resistant gloves, hard hats, steel-toed work boots, aprons and laboratory coats.
The purchase of clothing by a department for the purpose of professional image and visual recognition is not sufficient justification for an exception from taxability to the recipient.
1. Campus Department Responsibilities. Each campus department is responsible for communicating to their employees whether or not apparel provided to them is a taxable fringe benefit that is subject to tax withholding. If the apparel is deemed a taxable fringe benefit, the department should notify the employee of the taxable value of the apparel and when the tax withholding will occur.
Each campus department is responsible for reporting the following to the offices identified in Section E.2 when taxable items are provided to employees:
- Name of the employee
- Employee's USNH ID
- Description of the taxable item
- Value of item and the quantity issued (the value of the benefit is generally equal to the cost of each taxable apparel item received)
2. Responsibility for Reporting Taxable Items and Posting Process. Each campus department shall remit the information noted in Section E.1 above to their Campus office(s) listed below. The reporting should occur monthly by the 10th of the following month, with an annual reporting deadline of December 10th for income to be reported for the current tax year.
UNH From department to RC Unit/BSC and then to UNH HR/Payroll
GSC From department to BSC and then to GSC HR/Payroll
KSC From department to KSC Payroll
PSU From department to PSU Payroll
The units above should use the GIFTAX epaf and earnings code 929 (TFP - Apparel) to post the value of the related apparel benefit to impacted employee's earnings on a monthly basis.