Tax Man's Target: The Mobile Phone

[question everything]

JUNE 12, 2009

Tax Man's Target: The Mobile Phone

By MARTIN VAUGHAN and AMOL SHARMA
WSJ

The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a "fringe benefit." The Internal Revenue Service proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax. The IRS, in a notice issued this week, said employees could avoid tax liability if they showed proof they used personal cellphones for nonbusiness calls during work hours. The agency also could decide on a set number of phone minutes as "minimal personal use" that would be untaxed.

In a third option proposed by the IRS, employers could use a statistical sampling to determine what portion of workers' cellphone use is personal and how much is work-related. Workers would be taxed on the difference. The IRS move, which is spurring efforts by the wireless industry and others to kill the idea, would mark a stricter enforcement of an existing rule that classifies employer-provided cellphones as a taxable benefit, rather than a 24-hour-a-day work tool.

Under a 1989 law, workers who use company-provided mobile phones for personal calls are supposed to count the value of those calls as income and pay federal income taxes accordingly. But businesses and workers have long ignored the requirement, prompting the IRS to consider steps the agency said would make it easier for businesses and workers to comply. Some firms said they have ignored the tax because of the paperwork required to account for personal and work calls. U.S. companies allow incidental personal use for about 40% of employees with cellphones, according to a survey by In-Stat, a market research firm. The IRS is weighing a proposal to deem one-quarter of employees' use of work cell phones as personal use, and therefore subject to tax as a fringe benefit. Dow Jones Newswires' Martin Vaughan explains.

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The mobile-phone industry has a big stake in the outcome. U.S. businesses will spend an estimated $59 billion on cellular voice service for employees in 2009, according to research by In-Stat. The market has been a big revenue source for wireless carriers, though it has taken a hit in the recession. Cellphone companies worry, for example, that client firms wishing to avoid trouble with the IRS will cancel wireless contracts and instead reimburse employees for a portion of their personal cellphone. David Lemelin, a telecom analyst, said enforcement of the tax could discourage sales employees from tending to customers after hours. "Personal use of cellular in these instances has increasingly become considered a cost of doing business," he said.

Wireless companies also argue the IRS rule is outdated. Rates have declined so dramatically in the past decade -- with night and weekend calls free under many plans -- that it makes little sense for the IRS to assess employee benefits by nickels and dimes... Such companies as Verizon and Sprint Nextel Corp. are backing congressional proposals to repeal the tax. They are supported by local government, education and farm groups.

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http://online.wsj.com/article/SB124473141538306335.html (subscription)

Printed in The Wall Street Journal, page A1

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Hey, I think this will finally release employees from feeling tethered to work 24/7..

[MercutioATC]

1. Cool! Another tax!

I am SO happy that I'm leaving in 7 years...this place is getting way too invasive.

[damntexdem]

2. Not reasonable unless it specifies costs of non-business uses.

Use of a mobile phone for business uses should be seen as an employer's cost of doing business, not as a 'benefit' to an employee.

[SoCalDem]

3. Ripe for a class action lawsuit

If an employee cannot REFUSE to accept the "company phone", then they should not be assessed a tax on it..

My husband NEVER uses his cell phone from the company, unless he's traveling for business, and I don't even KNOWS the number....nor does he.. I don't think he's ever initiated a call on it, in the 6 years he's had it.

If the boss wants to "give" you a phone , so they can track you and have you on-call for 24/7, then YOU should NEVER be made to pay for that "perk"..:grr:

[question everything]

4. Right. If you cannot refuse it, then the employer

should pay the taxes.

I guess, in these times, no one would dare "refusing" a cell phone, saying that, hey, this is my time off.

No wonder productivity has increased. They work employees to death.