Employers are able to exclude the value of an employee's use of an employer-provided cell phone from the employee's gross income if the employee keeps careful records distinguishing business and personal calls, according to a recently released letter from an Internal Revenue Service official.
"If the employee uses the telephone exclusively for business, the value of all use is excluded from the employee's income (as a working condition fringe benefit)," wrote Lynne Camillo, a branch chief with the IRS, to Rep. Dennis Moore, D-Kan., in response to a constituent letter in June.
The employee must keep a record of each call and its business purpose. If the employee receives a monthly itemized statement, the employee should identify each call as personal or business. If the employee does not use the cell phone to make personal calls, or has only minimal use of the cell phone, business use of the phone is not taxable to the employee.
However, the employer must include the value of any personal use of the cell phone in the employee's wages, Camillo added. Normally, cell phones are categorized as "listed property," that is, items obtained for use in a business but designated by the Tax Code as lending themselves easily to personal use. Congress expanded the definition of listed property to include cell phones in 1989.
