When an employer provides its employees with cell phones primarily for business reasons, there is no taxation to the employee on either the business or personal use and no recordkeeping of usage is required. Similarly, reimbursements by employers of an employee-provided cell phone for business use is similarly not taxed. This notice applies for all tax years beginning with 2010. Notice 2011-72,2011-38 IRB; IR 2011-93.
The normal rule for an employer providing property to an employee that has both business and personal uses is that no deduction is allowed for the personal, living, or family expenses.
- Generally an employee is taxed on the personal portion of any property provided to the employee. AThe IRS has declared in effect that the employee's personal use of an employer-provided cell phone is a tax-free de minimis fringe benefit.
The notice does require that there must be substantial reasons relating to the employer's business, other than providing compensation to the employee, for providing the phone in order for the employee not to be taxed. Examples include contacting the employee at all times for work-related emergencies, or the employee's availability to speak with clients when he's away from the office or call clients in other time zones after his normal workday is over. However, the notice provides that cell phones provided to promote employee morale or goodwill, to attract prospective employees, or to provide additional compensation to employees is not provided primarily for noncompensatory business purposes.
The same rule of non-taxation of employer supplied cell-phones applies for employee reimbursements for their cell phones. However, reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee's regular wages will remain taxable.