The U.S. Internal Revenue Service issued guidance to clarify the tax treatment of employer-provided cell phones, which no longer defines cell phones as listed property that generally necessitates additional recordkeeping by taxpayers.
The guidance, IRS Notice 2011-72, states that when an employer issues an employee with a cell phone mostly for noncompensatory business reasons,the business and personal use of the cell phone is typically nontaxable to the employee, and the recordkeeping of business use is not required in order to receive this tax-free status.
Along with Notice 2011-72, the IRS is implementing a similar administrative policy for small businesses that offer cash allowances and reimbursements for personally owned cell phones used for work-related purposes. For employers that require workers to use personal cell phones for business reasons, those reimbursements of the employees' expenses for cell phone coverage are nontaxable. However, this is not applicable to reimbursements of unusual or excessive expenses or to reimbursements that substitute for part of employees' regular pay.
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"In light of these changes, employers should consider reviewing their cell phone policies," says William Weissman, an attorney at Littler Mendelson P.C., in Walnut Creek, Calif. "Many policies have prohibited any personal use of employer-provided cell phones. Companies may want to reconsider those policies in light of the IRS' new guidance.
"Employers should also ensure that any employer-provided cell phone or reimbursement is for a noncompensatory business purpose and is not merely to promote morale, attract employees or to add to an employee's compensation."
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