Cell Phone Tax for Personal Use?

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• 3 Comments sorted by Votes Date Added
• SFbay 156 Posts

  November 2008 PMVote Up0Vote Down

  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.

  
  
  

   

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• HRforME 497 Posts

  November 2008 PMVote Up0Vote Down

  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.

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• efeldman 146 Posts

  November 2008 PMVote Up0Vote Down

  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.

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