Social Security and Medicare Taxes

• Federal Insurance Contributions Act taxes include Social Security and Medicare. An employer withholds 4.2 percent for Social Security and 1.45 percent for Medicare. The employer matches this amount plus an extra 2 percent for Social Security in 2011 and submits this tax to the Internal Revenue Service for credit to your account. Once you earn $106,800 or the contributions base maximum for the taxable year, you pay no more Social Security tax. Medicare taxes have no contributions base maximum; you pay Medicare taxes on all of your earned income each year.
  
  

Accountable and Nonaccountable Plans

• If your employer reimburses you for uniforms after purchase or requires that you submit receipts in excess of your uniform allowance each year, this is an accountable plan that may qualify as nontaxable. A nonaccountable plan provides the funds to the employee without requiring an accounting or proof of the expenditure. The IRS considers the nonaccountable plan payments as taxable fringe benefits. The employer must withhold income taxes and FICA taxes from a nonaccountable plan unless the employee has reached the Social Security maximum payment.
  
  

Qualifying Uniform Allowance

• The IRS requires that you meet accountable plan rules for a nontaxable uniform allowance. Uniforms must be required for the work performed. Uniforms must not be adaptable for general use or used for any purpose other than work. The IRS may count reimbursement to an employee for money spent as an accountable plan; an allowance that requires receipts or requires the employee to reimburse the employer for unused uniform allowance is an accountable plan.
  
  

Form W-2

• An employer counts the uniform allowance as income to the employee on the IRS Form W-2 provided at the end of the tax year unless it qualifies as nontaxable. Place taxable fringe benefits in Box 1 as wages or other compensation and in Boxes 3 and 5 for Social Security and Medicare wages. If an employer chooses to pay the Social Security and Medicare taxes on the clothing or uniform allowance, the tax amount becomes wages for Box 1 of Form W-2.