Are you falling behind on this key documentation?
July 30, 2008 by Carol KatarskyPosted in: Best practices, Communication, Fringe benefits, Special report, T&E
Help for a thorny employee payment/reimbursement issue regarding cell phones may be closer than you thought.
Under current IRS regs, if you pay for any employees’ cell phones, your company should require the workers to document whether each phone call was for business or personal use. If you don’t have that documentation, the value of the use of the phone is technically income to the employee, and should be taxed accordingly.
A “business use only” policy isn’t enough — IRS knows it’s far too easy for employees to get around it.
But substantiating business use of a cell phone is a huge burden for companies and their workers — which is why many don’t do it (and also don’t bother to include the value as income.)
Fortunately, IRS has gotten the message that the rules haven’t kept up with the importance of cell phones to day-to-day business.
Right now, a bill is in progress through the Senate that would remove the requirement that you substantiate cell phone use. (The bill has already passed the House.) Several key senators support the bill, and they’re getting support from a variety of companies and business associations. A recent letter, signed by organizations ranging from the American Institute of Certified Public Accountants to the United States Chamber of Commerce, pointed out that the law was first put in place when cell phones were a near-luxury.
These days, they’re ubiquitous. And the cost of complying with the law is far greater than the fringe benefit to employees.
With any luck, the bill will pass the Senate soon — especially in an election year when politicians are looking for ways to benefit the voters.
We’ll keep you posted on the bill’s progress. But in the meantime, let us know how you handle cell phone reimbursements by leaving a comment.
Tags: IRS regs, Pending legislation, Reimbursement, T&E
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July 31st, 2008 at 11:34 am
We require our employees to reimburse for personal minutes if they go over the plan minutes. Recently though we got into a kind of “Family” plan that shares minutes between all of the phones. It guarantees that we will not be hit with high cell phone costs. The employees are responsible if they go over the usage but none have. Unfortunately we have a few employees that are using an excessive amount of minutes around 5,000 of which it turns out only 421 are business related and 1789 are over the normal allocation for the phone during peak times.
Of the total minutes about 8% are business. What would the IRS reportable value be since there were no extra fees? 92% of $50 or the “billed” exrtra cost of $632 even though we did not pay an additional dime?
July 31st, 2008 at 12:59 pm
We reimburse employees a portion of their cell phone bill and do not include it in their income.
August 1st, 2008 at 8:31 am
For those plans that we do not directly provide, we negotiate with the employee and pay a flat monthly fee and do not include in their income.
August 8th, 2008 at 5:17 pm
We offer company owned cell phones or a personal reimbursement to employees who use their personal phones for work to about 65 employees. Our minutes are pooled and we look at who is using the most minutes each month and if it a reasonable amount for business purposes. If it looks like they are using a company phone for personal use, they are given a warning and their billing is scurtinized more closely if the high volume continues. Because we do not go over our plan minutes and monitor for personal use, we do not include cell phone cost as income.
February 27th, 2011 at 4:35 pm
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