This week’s question comes from Tyler, a sales manager. We provide all our sales reps cell phones for business and personal use. In the past, the sales reps had to pay income tax on their personal-use portion of the cell phones. Now I hear they don’t have to pay on personal-use portion anymore. What is the status of taxation of cell phones? Answer: Effective for tax years beginning after December 31, 2009, cell phones are no longer designated as listed property.
What Is the Status of Taxation of Cell Phones?
Cell Phone Change Effected by Small Business Jobs and Credit Act of 2010
With the signing of the Small Business Jobs and Credit Act of 2010 (HR 5297) into law by President Barack Obama, the definition of listed property no longer includes “any cellular telephone (or other similar telecommunications equipment)”. The impact is that employers no longer must include the value of the personal-use portion of cell phones in an employee’s gross income.
Contact Vision Payroll for Further Information
Contact Vision Payroll if you have further questions on the changes to the classification of cell phones.
In Notice 2009-46, Substantiating Business Use of Employer Provided Cell Phones, the Internal Revenue Service requested comments from the public on several proposals for simplifying employer documentation of an employee’s business use of an employer-provided cell phone. For this purpose, the term “cell phone” includes similar telecommunications devices such as iPhones, Blackberries, and Windows Mobile Devices. An employee’s business use of an employer-provided cell phone is excludible from the employee’s income, but the fair market value of any personal use is includible in the employee’s taxable income.
The IRS is considering three methods for an employer to use to value such use of a cell phone. First is the “Minimal Personal Use Method” which might require an employee to establish use of a personal cell phone for personal use during business hours or a showing that the business cell phone was used for less than a certain established limit for personal use. Secondly, the “Safe Harbor Substantiation Method” would require a certain amount, such as seventy-five percent (75%), to be treated as business use. Finally, under the “Statistical Sampling Method”, an employer could use a statistical sampling method (subject to IRS approval) to determine an average employee business use percentage.
The IRS is also looking for a method to value the employee’s personal use for tax purposes. The IRS states that the employer’s cost “is not determinative of the fair market value of an employee’s fringe benefit.”
Notice 2009-46 provides further details on how employers may comment on the proposals and lists a deadline of September 4, 2009. Contact Vision Payroll if you have any questions on Notice 2009-46.
Vision Payroll