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If my employer provides a cell phone, is that income?

Article ID: 142
Last updated: 30 Oct, 2012
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By Jason Watson ()

Typically No. Since cell phones have been removed from the 'listed property' provision of the tax code, the IRS has been wrestling with how to deal with employer-provided cell phones as a fringe benefit. In many cases if your employer provides you with a benefit, such as a car, the value of that benefit can be become taxable income.

At first the IRS was considering a simple 75% safe-harbor rule whereas all cell phones would be considered 25% personal use, and therefore taxable income. The IRS was also considering allowing businesses to use a statistical sampling to determine their own business and personal use percentages. Sounds like a lot of brouhaha for very little gain. Or as we like to say, jogging a mile for a one French fry.

In the end, the IRS issued Notice 2011-72 which states:

An employer will be considered to have provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the employee with a cell phone. For example, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day are possible substantial noncompensatory business reasons.

A cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes.

So, make sure you and your employer are on the same page with the cell phone, and how it is viewed.

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