Clothing Allowance Subject To Taxation

In 2005, the City of Chelsea, Massachusetts changed its longstanding past practice of not subjecting to withholding taxes the clothing allowance called for by its collective bargaining agreement with Local 937 of the International Association of Fire Fighters. The Local challenged the Town’s decision in arbitration, arguing that the past practice should continue to be binding upon the Town.

An arbitrator upheld the Town’s position. While the Arbitrator acknowledged that a longstanding past practice existed of not withholding taxes from the clothing allowance, the Arbitrator also concluded that changes in federal law required that clothing allowances be subject to withholding taxes. The Arbitrator reasoned that the contract could not be construed in a fashion to require either of the parties to perform an illegal act, and that for the Town not to withhold taxes from the clothing allowance would violate the law.

City of Chelsea, Massachusetts and Chelsea Firefighters, Local 937, International Association of Fire Fighters, LAIG 6406 (Katz, 2006).

This article appears in the January 2007 issue