updated 04:15 pm EDT, Fri June 12, 2009
IRS to tax worker cell use
The Internal Revenue Service (IRS) announced this week it has proposed a rule that would deem 25 percent of an employee's annual company-issued cell phone expenses a taxable benefit, according to a Friday WSJ report. Employees could avoid the tax liability if they showed proof that they used their own cellphones for nonbusiness calls during work hours. The IRS would also set a minimum number of phone minutes dedicated to personal use that would be untaxed.
What the IRS is calling a "fringe benefit" could also be taxed based on an employer's statistical sampling that would determine what percentage is personal and what is work-related, with employees taxed on the difference. The actual tax would depend on the annual cost of the wireless service and an employee's tax bracket. A research firm says US companies allow about 40 percent of work phone use for incidental personal use.
A 1989 law is already in place that classifies an employer-provided cell phone as a taxable benefit rather than a work tool. Workers are supposed to keep track of the value of their personal calls and pay federal income taxes accordingly. Because of the widespread non-compliance to this requirement, the IRS is proposing the new measures.
The proposal is seeing strong opposition from the industry, as wireless providers are worried businesses would cancel their contracts rather than have to comply with the complicated IRS law. They may instead reimburse employees for their personal cellphones.
There is also the argument that the 1989 law is outdated, at the start of the cellphone industry and long before wireless plans offered free night and weekend calling.
"We don't think it's really relevant in today's economy," said Sprint spokesman John Taylor.
The IRS is collecting data on its proposal until September before it takes any further steps into making its proposal into law.