Cell Phone Tax for Personal Use?

SubGrapHR

Does anyone have any knowledge about an IRS provision allowing them to tax the personal use of a company cell phone?  Is this true?  Have any of you had to do this?  It was reported to me by a colleague that his employer recently banned all personal use of the company cell phones for this reason.  I have heard something to this effect but thought it only pertained to federal/state agencies, etc.  Any clarification on this would be much appreciated.

SFbay

I won't claim to be a tax expert but I think your colleague is correct. The IRS treats cell phones as "listed property," which has
"implications for depreciation deductions taken by the business and the
computation of net income." (http://www.irs.gov/pub/irs-pdf/p946.pdf)

See this clipping from the IRS website talking about public employers
(e.g. municipalities) (read the whole thing at
http://www.irs.gov/govt/fslg/article/0,,id=167154,00.html). 

 

To be able to exclude the use by an employee from taxable income from an
employer-owned cell phone, the employer must have some method to require the
employee to keep records that distinguish business from personal phone charges.
If the telephone is used exclusively for business, all use is excludable from
income (as a working condition fringe benefit). The amount that represents
personal use is included in the wages of the employee. This includes individual
personal calls, as well as a pro rata share of monthly service charges.

In general, this means that unless the employer has a policy requiring
employees to keep records, or the employee does not keep records, the value of
the use of the phone will be income to the employee.At a minimum, the employee should keep a record of each call and its business
purpose. If calls are itemized on a monthly statement, they should be
identifiable as personal or business, and the employee should retain any
supporting evidence of the business calls. This information should be submitted
to the employer, who must maintain these records to support the exclusion of the
phone use from the employee’s wages.The following situations illustrate the application of the rules:Example 1: A municipal government provides an employee a cell phone for
business purposes. The government’s written policy prohibits personal use of the
phone. The government routinely audits the employee’s phone billings to confirm
that personal calls were not made. No personal calls were actually made by the
employee. The business use of the phone is not taxable to the employee.Example 2. A municipal government provides an employee a cell phone for
business purposes. The government’s written policy prohibits personal use of the
phone. However, the government does not audit phone use to verify exclusive
business use. The fair market value of the phone, plus each monthly service
charge and any individual call charges are taxable income to the employee,
reportable on Form W-2.Example 3: A state agency provides an employee with a cell phone and pays the
monthly service charge. The employee is required to highlight personal calls on
the monthly bill. The employee is then required to timely reimburse the agency
for the cost of the personal calls, and the employee is charged a pro rata share
of the monthly charge. The value of the business use portion of the phone is not
taxable to the employee.

 

HRforME

It is my understanding that this is a provision that hasn't been enforced, but is expected to be more in the future....with so many more employers providing cell phones to employees.  I do know that due to what our accountant is saying, we have decided to change our policy and require our employees to have their own cell phone and to expense business use....rather than telling them no personal use on company cell phones.

efeldman

We do not provide cell phones to employees for precisely that reason.  They receive $50 per month toward their plans and are allowed to expense business usage.