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Are cellphone allowances taxable?

by on
in Compensation and Benefits,Human Resources

Q. We reimburse employees for the business use of their personal cellphones. In order to cut down on paperwork, management has suggested that instead of having employees submit their cellphone bills, we give them a flat allowance. This sounds like we’re giving them extra pay. Would those allowances be taxable?

A. Probably. The IRS’ guidance allows employers to reimburse employees for their monthly phone and data charges, but employees must still submit some minimal documentation, such as a copy of their phone bills.

If you simply give allowances to employees, the rules would still require employees to substantiate their expenses. Otherwise, it is compensation.

Since company-provided cellphones are now generally considered a tax-free fringe benefit, it might make more sense to simply give phones to your employees.

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