YEAR END TAX PLANNING

Personal Use of Company Cell Phones

Your employees’ pay must include the value of fringe benefits you provide, unless the benefits are specifically excluded from income by law or are paid for by the employees. The value of these includable fringe benefits is generally subject to Social Security and Medicare Tax (FICA), Federal and state unemployment taxes (FUTA and SUTA), and income tax withholdings.

Personal Use of Company Cell Phones

In September 2011, the IRS issued guidance regarding the taxation of employer-provided cell phones. Finally recognizing that employers provide their employees with cell phones primarily for noncompensatory business reasons, the IRS has stated that the value of the business use of an employer-provided cell phone is excludable from an employee’s income as a working condition fringe benefit without burdensome recordkeeping. In addition, any personal use will be excludable from the employee’s income as a de minimis fringe benefit.

The Small Business Jobs Act removed cell phones and other similar personal communication devices from the classification as listed property. Therefore, the increased substantiation requirements and special depreciation rules that apply to listed property, no longer apply to these devices. Instead, the employer need only substantiate their costs in much the same way as the employer supports the deduction for other types of business equipment. If such devices are not used predominately for business purposes, then employees must continue to track their business versus personal use and only the business use would qualify as a tax-free fringe benefit.