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Cell Phones Issued to Employees for Business Use Are Not Taxable to the Employee

Employer Provided Cell Phones

In a Notice, the IRS has caught up with the times making cellular phones a non taxable item.  The Small Business Jobs Act of 2010 removed cellular telephones from treatment as listed property, a designation that imposes strict substantiation requirements on employers.  In doing so, Congress left the collection tasks up to the IRS, but left the implication that the IRS should take a reasonable stance.  In the notice, the taxability of employer provided cell phones was ended when the device is being used for business purposes.  If the device is given to an employee for non business use or compensation, it remains taxable to the employee.

Editors Comment

Finally, the IRS is taking a reasonable stance on employer/employee usage of cell phones.  Now that cell phones have become mainstream and, in most cases, necessary for employment and business, the substantiation issue is made more reasonable.  On the other hand, there is still the requirement that employer provided cell phones are used only for business purposes.  Employers would be well advised to have a written policy that states this clearly proves the phone is to be used only for business purposes.  This can be done easily be inserting a page in the policy manual regarding cell phone usage and having the employees initial the page.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors