Mobile phones are a necessity for many businesses. With the proliferation of smartphones and their use for both business and personal purposes, many employers have chosen to provide reimbursements for personal devices rather than provide a separate business device for their employees. In most cases, this is less expensive for the business and more convenient for the employee. However, since the reimbursement is commonly for a device that is used for business and personal purposes, it raises the issue of the taxability of that payment. So, are mobile phone stipends or reimbursements taxable?
The IRS released guidance in 2011 (Notice 2011-72) indicating 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”. This means that if an employer provides an employee with a mobile phone, a reasonable reimbursement for business use of that phone can be provided to the employee tax free. This is also known as a “De Minimis Fringe Benefit”.
The initial guidance did not clarify if it was applicable to personal mobile phones that are partially reimbursed by employers due to their business use. The IRS subsequently issued a field advice memorandum that indicated personal mobile phones with reasonable reimbursements should be analyzed the same way as employer provided devices.
So, are mobile phone stipends or reimbursements taxable?
When reimbursed properly, mobile phone costs for employees can be offset with non-taxable reimbursements. However, the payments must be for amounts consistent with the business use based on the amount of business conducted using the phone and the seniority of the employee being reimbursed. Standard stipend amount for all employees will be difficult to deem non-taxable and may lead to an increase in W-2 wages for employees.
Do you want to understand how this reimbursement could help your business? Contact us, we can help you navigate all aspects of the tax law.