Are payments for clothing taxable for a police force if the payment is paid upfront with no evidence of purchase? How about educational incentive payments?

by Eric J. Seidman, CPA | Feb 15, 2019
askacpaicon

For a police force, are payments for clothing taxable if the payment is made upfront, with no evidence of purchase? Also, is an educational incentive payment taxable?

It’s a bit unclear as to which specific tax (income or sales) the first part of the question refers to. In general, clothing provided by an employer to an employee is considered taxable only if it is suitable for everyday wear and is not restricted to the specific job in question. A police uniform cannot be used for everyday wear, so if a precinct pays for for the uniforms of its officers, the value of clothing provided would not be considered taxable income to the officers. The timing of the payment and evidence of such is not applicable to whether tax relates to this situation.

Regarding the second question, the unfortunate answer is “it depends.” If the question refers to an educational assistance program, then employees can exclude up to $5,250 of educational assistance annually if certain criteria are met (see Sec. 127). If the question refers to scholarship programs under employer-related private foundations, the IRS provides for the exclusion of this value from income again, depending on whether certain criteria are met. See Sec. 117(a) for the specific details related to this.
 
Generally, educational incentive payments are not taxable as long as specific criteria are met. Common forms of this criteria may include the following:

  • The program doesn’t discriminate in favor of highly compensated employees,
  • Employees cannot choose between the benefit and another benefit like cash
  • The educational program doesn’t involve hobbies, sports, or games

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Eric J. Seidman, CPA, is with Wouch Maloney & Co. LLP in Horsham, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Ask a CPA

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.

Search