NUMBER: 4.3.10
DATE: 10/03/07
REVISION:
| SECTION: | Human Resources |
| AREA: | Payroll |
| SUBJECT: | Employer Provided Cell Phones |
PURPOSE
To notify departments within the University of Arkansas for Medical Sciences (UAMS) of the requirements and procedures for accounting for personal use of employer provided cell phones.
SCOPE
All UAMS employees, faculty and staff with UAMS provided cell phones.
POLICY
UAMS recognizes it is necessary to provide certain employees with cellular telephones to conduct business. This raises special tax concerns, due to the fact that cell phones are considered “listed property” under the Internal Revenue Code. “Listed property” includes items obtained for use in a business but designated by the Internal Revenue Code as lending themselves easily to personal use. To be able to exclude the use of an employer provided cell phone from an employee’s taxable income, the employer must have some method that distinguishes business usage from personal usage.
UAMS has estimated that personal use is at or below 10%. While personal use may be below 10%, UAMS feels it is better to be conservative than to risk being out of compliance with tax law. An amount equal to 10% of each business cell phone user’s monthly cost will be added to the user’s W-2 as a taxable benefit unless the user can demonstrate that he/she has a separate cell phone used exclusively for personal calls and can support 0% personal usage on his/her UAMS cell phone. If the user estimates personal use is greater than 10% the additional cost will be added to the user’s W-2.
Please note that it is better to overestimate personal usage than to underestimate. If an IRS detail audit reveals personal use is greater than what was estimated, the entire cell phone expense would be considered taxable, the individual would have to pay tax on the entire cost and our organization would be charged penalties for being out of compliance with tax law.
PROCEDURES
Example Calculation: An employee’s cell phone expense is $80 per month. Total expense for the year is $960. If the employee’s estimated personal use is 10% or less, the taxable benefit would be $96. This is the amount that will be added to the employee’s W-2. Assuming a tax rate of 28%, the employee would owe an additional $27 to the IRS.
REFERENCES
Link to related IRS guidance: http://www.irs.gov/govt/fslg/article/0,,id=167154,00.html