Tuesday, September 20, 2011

IRS Updates Guide on Use of Employer-Provided Cell Phones

The Internal Revenue Service (IRS) recently issued updated guidance (pdf) on the tax treatment of employer-provided cell phones, effectively treating both business and personal use of such phones as exempt from an employee’s wages.  The reasoning behind this update is that the IRS has noted that employers provide cellphones for numerous noncompensatory purposes.  Accepting what is a common business reality today, the IRS announced that if an employer provides an employee with a cell phone “primarily for noncompensatory business purposes,” the cell phone will be treated as a working condition fringe benefit and the value of the cell phone usage will be excluded from the employee’s wages.  However, not all employer-provided cell phone use is noncompensatory.  The IRS also noted that providing cell phones 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” do not qualify as being “primarily for noncompensatory business purposes.”

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