Cellphones: Can you hear me now?

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in Office Management,Payroll Management

Q: We reimburse employees for the cost of their cellphones, as well as their wireless coverage. Is the reimbursement for the cost of the cellphone taxable?

A: No. If you require employees to purchase the phones, and to submit receipts, their reimbursements aren’t taxable. Key: Phones must be purchased for employment with your company. Employees can’t be reimbursed for phones they bought before they started working for you.

Q: Employees must use their personal cellphones for business. Their monthly reimbursements are based on our estimate of their business use. If reimbursements aren’t provided under an accountable plan—employees don’t document each business call—are the reimbursements taxable?

A: No. As long as you have a noncompensatory business purpose, employees’ business use of their cellphones is a working-condition fringe benefit; their personal use is a de minimis fringe. The first prong of the accountable plan rules, which requires em­­ployees to have a business purpose to incur an expense, doesn’t apply. However, your reimbursements can’t be completely arbitrary. You’ll probably need to look at one or two bills to determine the
proper level of reimbursement.

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