Taxability of Payments
For any type of payment, we will always look at the IRS accountable plan rules for payments and other IRS considerations for taxability, and the support documentation.
- All payments are considered taxable by the IRS unless there is a specific exclusion in the tax code for a reduced or non-taxable treatment.
- If there is not good substantiation for what the payment is for, i.e. no description for payment, the purpose for payment or back up documentation, we will deem the payment as taxable and reportable (1099-MISC, 1042-S, W-2, etc.).
- Payments to International persons, who are nonresidents, are required to have 30% tax withholding from the payment unless there is a specific exclusion in the tax code for a reduced or non-taxable treatment.
Every payment is looked at for what type of payment it is per the Purdue definitions here, based on IRS guidelines.
- Any service/work component
- Any pay for attending a workshop/conference, etc.
- Any pay for an award where the person has entered a contest/competition where the payment is based on merit (travel award) or chance (prize)
- Any item that is called a “reimbursement”
A “true” reimbursement that is tax-free must have the following three components under the IRS accountable plan rules. If a reimbursement does not have all three components, it is a taxable reimbursement, even if the person paid the expense.
- A business connection, largely for the benefit of Purdue University, not the person
- Documentation for the expense, i.e. receipts, MapQuest for mileage
- AND submitted in a timely manner according to the employer's requirements. IRS and Purdue require reimbursement requests and expense reports (if travel related) to be submitted within 120 days of the event or the last day of travel to be considered to have been timely submitted.
Many reimbursements, like moving expenses (allowances or reimbursements), are ALL taxable because of the 2018 Tax Cuts and Jobs Act changes, so this is also not a tax –free reimbursement. See IRS Publication 521.
Taxability of Employer Provided Uniforms:
There may be situations where University departments provide uniforms for their employees. For each employing department, the method selected for furnishing and maintaining uniforms will be the method which results in the lowest cost consistent with uniform quality, cleaning standards, and service. Replacement schedules and replacement needs of only standard-issue uniforms and their related costs will be the responsibility of the department. The employer may choose uniforms from a variety of stock wearing apparel available through the contract vendors. All arrangements for acquiring and maintaining uniforms will be made by the Purchasing Department.
- If the Uniforms remain the property of the University or a commercial supplier and must be returned upon termination of employment, then the employee will not be taxed.
- If the ownership of the uniforms purchased with University funds transfers to the employee, and all of the following three criteria exist, then the cost of the uniforms will be taxable to the employee and should be reported to firstname.lastname@example.org by the department purchasing the uniform for inclusion in the employee’s form W2:
- The annual value of the uniform(s) provided is over $100 and
- The uniform is adaptable to street wear per IRS guidelines and
- The uniform is not required for identification as a Purdue employee. Examples of employees who are required to wear uniforms to identify them as Purdue staff for access to areas across campus would be maintenance workers, grounds crews or inventory control staff.