If you have an employer-provided cell phone, you will be interested in a significant change the IRS made regarding the taxability of both the phone and the usage.
RumboughIn Notice 2011-72 (IR-2011-93), the IRS stated that an employer-provided cell phone will not be taxable to an employee when it is provided primarily for substantial business reasons (other than as an employee benefit). This eliminates any need to track business/ministry calls versus personal calls. The cell phone must be provided primarily for “substantial business reasons.”
The notice included three examples of substantial business reasons: (1) the need to contact the employee at all times for emergencies; (2) the employee’s need to speak to customers when away from the office; and (3) the employee’s need to speak to customers in other time zones outside of the employee’s normal business hours.
Giving a cell phone to an employee to promote goodwill or morale or to attract a new employee does not fall under this new provision. With regard to the minutes used, complete exclusion from taxation – without any allocation between business and personal use – only certainly applies when the employer provides the cell phone. In other words, the employer either actually purchases the cell phone for the employee’s use, or reimburses the employee for his cost after substantiating the purchase with a receipt.
If you are a church or other organization that reimburses or provides allowances for employee-provided cell phones, the guidance is as follows: 1) The employer must require the employee to use the employee’s personal cell phone in connection with the employer’s business; 2) the employee must maintain the type of cell phone coverage reasonably related to the needs of the employer’s business; and 3) the reimbursement must be reasonably calculated and not exceed expenses the employee actually incurs in maintaining the cell phone. Churches who currently have a cellphone usage policy should incorporate these changes into their policy. This change in the law will make it much easier on churches and ministers to keep track of their expenses.
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.