Is that old fire department t-shirt in the back of your closet really taxable income? The volunteer and combination fire service may be familiar with the requirement to declare the value of incentives provided to volunteers, but many fire departments are unaware that the IRS considers uniforms to be a type of reportable incentive.
However, a recent announcement by the IRS clarifies that fire departments can avoid this requirement to report uniform values if they establish a policy to ban wearing department-issued clothing while off-duty.
At the heart of this issue a is a little know provision within the tax code that states that employers must report the value of clothing provided to employees if that clothing is required for work and is “suitable for everyday wear.”
A recent IRS audit of a Virginia fire department prompted Senator Mark Warner (D-Va.) to press the IRS for a clear definition of what types of fire department-issued clothing was “suitable for everyday wear.”
While the IRS couldn’t pinpoint an exact definition, the IRS did use their stance on military uniforms as an example. In this case, the IRS contends that the military’s strict rules on which uniform components can’t be worn off-duty constitutes an assessment of those uniform components as being unsuitable for everyday wear. As a result of these policies, the value of these uniforms should not be included when reporting a soldier, sailor or marine’s reportable income.
Similarly, the IRS responded to Senator Warner in March, stating that when a fire department has a policy “prohibiting off-duty wearing of uniforms,” the uniforms are no longer “suitable for everyday wear” and should not be “includ[ed] in [an] employee’s income.”
From this clarification, we can see clear guidance from the IRS that if a fire department doesn’t want to count the value of uniforms towards the overall value of a volunteer’s incentives, the department must prohibit volunteers from wearing any department-issued uniform components while off-duty, even t-shirts or baseball caps.
The off-duty wear of uniform components can be important to volunteer and combination fire departments for a variety of reasons, including building department awareness in the community or boosting morale among members. However, these reasons must be carefully weighed against compliance with IRS reporting procedures.
The bottom line: Fire departments wishing to avoid the reporting of these uniform components must adopt policies prohibiting members from wearing their uniforms while off-duty.