The IRS issued guidelines today to clarify the tax treatment of cell phones provided by employers to employees. The Small Business Jobs Act of 2010 removed cell phones from the definition of listed property under the tax code. This meant that employer-provided cell phones were no longer subject to the more onerous record keeping requirements that apply to certain property defined as “listed property” under the tax code. However, the Act left unclear whether the value of cell phones provided by an employer should be included in an employee’s taxable income.
The new IRS guidelines provide that as long as a cell phone is provided to an employee for noncompensatory reasons—meaning primarily business reasons–the IRS will treat it as a tax-free working condition fringe benefit. The employer’s purpose for providing the cell phone must not be to give the employee additional income. So, for example, the employer could provide a cell phone to ensure its employee could speak with clients at any time or to be able to contact the employee anytime for work-related emergencies. In those circumstances, the value of the cell phone or any reimbursement to the employee for cell phone expenses would be tax free. However, if the cell phone was provided for the purpose of giving the employee additional income or to promote goodwill or attract employees, the employee would have to report the value of the phone or any reimbursement for cell phone use as taxable income.