If your job provides you with a cell phone or Blackberry, is personal use of that device taxable to you? Up to now, it seems employers have been largely ignoring personal use of employer-provided cell phones, other than to maybe charge for personal use in excess of the company's rate plan. The IRS suggests that needs to change in a new information letter. According to the IRS, an employer may exclude the value of an employer-provided cell phone from an employee's gross income if the employer requires the employee to keep records that distinguish business from personal phone charges. If the employee uses the device 100% for business, all use of the phone may be excluded from the employee's income. However, if any portion of the usage is personal, the employer must include the value of the personal use of the cell phone in the employee's wages. The IRS says personal use includes both individual personal calls, as well as a pro-rata share of monthly service charges. The IRS further says the employees should keep records of each call and its business purpose to ensure that the business use may be excluded from gross income.
A couple of thoughts here. First, if you are going to be like Rudy Giuliani and have your wife call you while you're on TV, don't expect to qualify for 100% business use. Ok, seriously. As an employee, I'm all about getting as much stuff from my employer as possible. The more free stuff, the better. But, from the businesses point of view, it will likely be much better for employees to buy their own phones and charge to the company their business use. That way, there's no accounting burden on the company to get their employees to meet the impossible task of tracking all their calls. It's bad enough when people talk on the phone when driving. Can you imagine would it would be like if they filled out their phone log after the call while driving? Yikes!
Companies can still negotiate employer discounts with carriers even if the cell phones and monthly bills are charged directly to the employees. That way, employees can still take advantage of the company's buying power and the company can enjoy lower administrative costs.
This tax advice is general in nature and applicable only to US taxpayers. Talk to your tax advisor about how to apply this to your business. And, don't even try to get out of tax penalties with anything you read here (that's an IRS Circular 230 disclaimer).
3 comments:
What a stupid mess!
Why limit this madness to cell phones? After all, I use the work phone to call home every once in a while. Shouldn't I have to keep a log of all calls made and then count a portion of my employer's telephone costs as income. "Uh, boss? I need to know how much Intel's paid for IT infrastucture, specifically telephone hardware, networking, and software so I can charge a pro rated percentage as income."
On a more serious note, how about work-supplied computers? I take my work laptop home every evening because my employer wants me to. Something about work continuity should the building disappear overnight. What if I use it for personal applications at home? Should I be logging that? What about if I use it to send a personal e-mail at work?
Actually, I'm sitting at work right now, reading your blog and sipping a hot drink. Should my cube with the furniture, the lights, my parking place, etc., all be pro rated as income for the portion of time at work I do personal stuff?
Hi Brent, the IRS has certain types of property that they consider to be prone to abuse. They call these items "listed property." Cars, computers, cell phones are the biggies. As you point out, their recommendations are extreme and difficult or impossible to administer. Let's not go there as to how much WORK people do at work! Thanks for reading.
Oh, so it does apply to computers. In that case, ignore what I just said. When that computer comes home with me, I'm sure it just sits in the bag until I take it back to work... ;-)
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