IRS Considers Taxing Work-Issued Cell Phones
According to the report, the IRS has proposed that employers assign 25% of an employee's annual phone expenses as a taxable benefit. In other words, take the service plan costs for an employee, and use 25% of that as taxable income. As many of these workplace-issued devices have data plans, the cost per year could be high. The WSJ estimated that a worker in the 28% tax bracket with wireless device costs of $1,500 a year would see $105 in additional federal income tax.
Not a huge amount, but still.
Under two different options, the employee could avoid some or all of the tax liability. One proposal by the IRS would be require employees to show proof that they used personal cellphones for non-business calls during work hours.
Alternatively, the IRS could use a set number of phone minutes as "minimal personal use" that would be untaxed.
A third option proposed by the IRS would require employers to use a statistical sampling to determine what portion of worker's cellphone use is personal and what portion is work-related, with workers being taxed on the difference.
Interestingly, a 1989 law already requires such reporting, but companies and workers have ignored the requirement. In my case, we never even knew this law existed. We certainly wouldn't be a fan of option two above; we work in mobile phone third-party software and am constantly using the phone, but we also have an iPhone that we use for all our personal calls. Thus, their assuming we have a certain amount that's personal use on the phone would be invalid.
It does seem like logging of calls would be difficult for businesses and employees to comply with. Naturally the wireless industry is definitely against this proposal.
Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, a trade group of cellphone-equipment manufacturers and service providers said:
"The idea that you should keep a log saying, 'I made a call saying I will be late for dinner again,' that's a totally cumbersome and burdensome requirement that most employers and employees are not going to comply with."That's true, but it's probably not that hard to determine personal calls vs. business calls by looking at a monthly bill. But who wants to do that, either?
An example given in the WSJ report is the town of Rowlett, TX. They eventually decided to forgo trying to track and record such data for the 100 cellphones provided to city employees.
John Harper, the mayor of Rowlett said:
"I'm all for collecting taxes for the government, but let's not end up costing us more to do it than the tax you ultimately collect."