Taxing Cell Phone Use

phoneYou may not be aware that employers must include in an employee’s W-2 income the value of employer-provided cell phones unless the employee satisfied convoluted rules. Over the past few years, the IRS has increasingly raised this issue on audit, with the result that many employers, were hit with a tax bill plus penalties. As every small business owner knows, cell phones are essential to conducting business and recent IRS statements have triggered a backlash recently. After several weeks of distress over the IRS’s taxation of employee cell phone use of employer provided cell phones, the service released a statement on Tuesday clarifying their position:

Statement of IRS Commissioner Doug Shulman

This month, the Internal Revenue Service asked for comments on ways to simplify compliance with rules related to employer-provided cellular telephones. The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently. Some have incorrectly implied that the IRS is "cracking down" on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals.

Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses. Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.

This is good news for all small business owners and should make tax preparation much easier.

Posted by Clint Coons, asset protection attorney, Seattle, WA

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