Employer Provided Cell Phone Proposals

Employer Provided Cell Phone Proposals

I sent this out as an email to Business Clients a few months ago. This is just a reminder.

The personal use portion of an employer-provided cell phone is a taxable fringe benefit to employees and belongs on their W-2s accordingly.

In Notice 2009-46 IRS has proposed three (really four) methods to simplify the tax treatment of an employee’s personal use of employer-provided cell phones.

These are proposals, not yet effective, however, if used you will be more likely to be given the deduction in an audit.

Here are the proposals IRS has put forth for comments:

1) Minimal Personal Use Method #1 – The entire amount of an employer provided cell phone would be deemed to be for business use if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (nonemployer-provided cell phone for personal purposes during the employee’s work hours.

2) Minimal Personal Use Method #2 – The entire amount would be deemed to be for business use if the employee uses the phone for no more than a specified amount or type of “minimal” personal use. This could be based on number of minutes or for certain personal purposes.

3) Safe Harbor Substantiation Method – A flat 75% of the phone’s use would be considered to be business and the remaining 25% would be considered personal and treated as employee compensation.

4) Statistical Sampling Method –An employer could use statistical sampling to measure an employee’s personal use and multiply the personal use percentage by each employee’s usage to determine the compensation (personal use portion).

This Notice does not change or address the deduction computation for self-employed individuals nor nonreimbursed employees. Substantiation was somewhat addressed in INFO 2007-0030.These proposals could simplify some employer methods. Or this news could cause some employers more work if they aren’t already including the personal use of company-provided cell phones in the employees’ wages.

Thanks so much to Dave Mellem, EA for this article.