Employer Reporting for Cell Phones

Recently one of our clients asked the following question: “What should we (organization) do regarding employer-provided cell phones? Should we be taxing the employees through payroll (imputed income)? We have approximately 10 employees that we provide cell phones for. We believe they all use the phones for both business and personal use, but only I can say for myself how much is personal vs. how much is business. I understand that last year the IRS was going to make a major change in their requirements for personal cell phone use taxation on business provided cell phones, but I don’t know if they ever did. What should we be doing?”

This is a very common question for all organizations, not just tax-exempt entities.

Here was my response for this very timely question:

“You are correct in that this summer there was some question regarding the continuation of the current policy to tax employees on their personal usage. The IRS requested comments and then shortly after comments started coming in the IRS Commissioner issued a statement on the subject.  Follow the link for the IRS statement. It is unclear whether Congress will agree with the Commissioner’s request but it would certainly seem reasonable. So at this point the rules haven’t actually changed – personal use of employer provided assets is still income to the employee. Should you change your procedures in light of the Commissioners statement? This could still be an issue upon IRS audit. If your policy is to monitor usage, the organization should track and document the usage of personal “minutes” and allocate a portion of the charges to those minutes, then tax them to the employee on their W-2. Similar to other employee use of employer-provided assets – if documentation is not provided and maintained all of the usage is considered personal.