The IRS has recently announced instructions that simplify tax treatment of employer provided cell phones.
The IRS now says that employers no longer need to include any use of a company-provided cell phone in an employee’s wages if the phone was provided for “non-compensatory business reasons.”
“Non-compensatory business reasons” include:
-An employee’s need to speak with clients located in other time zones outside of the employee’s normal work hours
-An employer’s need to contact an employee at all times for work-related emergencies
-An employee’s need to be able to speak with clients at times when the employee is out of the office
The IRS has also said that it will consider the value of any personal use of a cell phone as a nontaxable fringe benefit, as long as the phone is used primarily for non-compensatory business purposes. This means that employers no longer have to determine which calls by employees are personal and which aren’t — and then include the value of personal calls in the employees’ taxable income.
However, cell phones provided for any of the following reasons will be considered for compensatory business purposes — and require employers to track and tax their use:
-As a means of providing additional compensation
-To promote the morale or goodwill of an employee
-To attract a prospective employee
The new rules are effective for all taxable years beginning Jan. 1, 2010. They apply to both employer-provided cells and the reimbursement of employee-owned cells.
For detailed information on this IRS memo, you can find Notice 2011-72 on www.irs.gov.
