7 minute read
For many businesses, personal protective equipment (PPE) is a relatively new expense category. When COVID-19 infections first began to rise in 2020, businesses that had never provided their employees with protective equipment were suddenly encouraged (and often required) to buy their employees wearable safety equipment. These items include surgical masks, face shields, goggles and gloves. Now many businesses want to know – are these costs tax-deductible?
Personal protective equipment (PPE) is equipment that workers wear to protect themselves from hazards they’re exposed to in the workplace.
PPE isn’t a new concept. Many industries have been providing their workers with wearable protective equipment for decades, even centuries. But when COVID-19 first emerged, PPE became essential for businesses in all industries because suddenly, nearly every worker was at risk.
The Occupational Safety and Health Administration (OSHA) considers PPE to be any equipment that protects workers “from serious workplace injuries or illnesses resulting from contact with chemical, radiological, physical, electric, mechanical, or other workplace hazards.”
Because workplace hazards vary by industry, PPE will also vary by industry. Here are a few examples:
In most cases PPE will likely be deductible, but the PPE tax deduction isn’t guaranteed.
Employee-related costs (like uniforms, tools and equipment and payroll) are typically deductible to businesses because they are both ordinary and necessary to the operation of the business. For PPE to be deductible, you need to ask yourself if PPE was (or is) an ordinary and necessary expense for your business.
To be deductible, PPE must be both ordinary and necessary.
Both tests are subjective, which means that the IRS and the tax courts have final say in whether employee-related costs are deductible. But as you consider the purpose of COVID-19-related PPE, most businesses will be able to argue that PPE is both ordinary and necessary because the coronavirus has the potential to infect nearly every single worker.
If you’re concerned the IRS will push back on your deduction, there are a few things you can do.
First, you can check to see what others in your industry have done to see if you’ve satisfied the ordinary expense test. You should look at businesses both within your city and businesses in other cities/states to get a feel for whether PPE is common across the industry.
Second, you can carry out a risk assessment to see if you’ve satisfied the necessary expense test. If you find that the risk to your workers is high, you’ll likely be required to purchase PPE to meet safety regulations set by the Occupational Safety and Health Administration (OSHA) or local ordinances, which can be a great argument for PPE purchases being necessary.
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Yes, individuals can deduct PPE from their taxes.
Individuals can deduct PPE that they purchase for themselves, their spouse, and their dependents to use at home or out in the community. Individuals can also deduct PPE to use at their workplace, but only if those PPE costs were not reimbursed by their employer.
In a news release dated March 26, 2021, the IRS stated that face masks and other PPE used to prevent the spread of COVID-19 are considered a deductible medical expense to individual taxpayers. Medical expenses that exceed 7.5% of a taxpayer’s adjusted gross income (AGI) are deductible on Schedule A of Form 1040.
Even though PPE is deductible, in practice, few taxpayers will see a tax benefit from their PPE deductions because:
1. Most taxpayers take the standard deduction.
The Tax Cuts and Jobs Act raised the standard deduction beginning in 2018. Today, the standard deduction is so high most taxpayers are better off taking the standard deduction than they are itemizing.
2. Only medical expenses that exceed 7.5% of your AGI are deductible.
Only individuals with extremely high medical bills will see a benefit from deducting their PPE.
However, there is good news for individual taxpayers: PPE is an eligible expense under group health plans. Suppose you participate in a health flexible spending account (FSA), Archer medical savings account (Archer MSA), health reimbursement arrangement (HRA) or health savings account (HSA). In that case, those plans can reimburse you for PPE purchases. If a medical plan reimburses you, you cannot deduct PPE expenses from your taxes.
Will businesses owe sales tax on PPE purchases?
Yes, most PPE purchases will be subject to sales tax, but there are a few exceptions:
If your business is a nonprofit entity like many hospitals or government agencies are, you will not owe sales tax on any purchases, PPE or otherwise.
If you purchase PPE to resell in your store to customers, you will also not owe sales tax on your purchases. You can provide your supplier with a resale sales tax certificate that exempts you from paying sales tax.
You can also save on sales tax on PPE purchases if you complete your purchase in a state where you don’t have nexus. States can only impose their tax laws on an out-of-state business if they have sufficient connection — or nexus — with the state. If your business does not have nexus with the state where your PPE supplier is located, you may not owe sales tax on your PPE purchases. Just keep in mind that nexus laws are expanding, making more and more out-of-state businesses subject to the sales tax laws of other jurisdictions.
Yes. If you owe sales tax on PPE purchases, the cost of sales tax is included in the cost of your PPE. If your PPE purchases are deductible, you can also deduct the associated sales tax costs.
PPE, especially COVID-19-related PPE, could be an expense line item on your books for years to come, so make sure you and your tax advisor understand how to record those costs on your tax return.
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