IRS Proposes Safe Harbor Rule for Taxing Work Cell Phone Use

June 11, 2009 ( - The Internal Revenue Service (IRS) is considering a new rule to tax a quarter of employees' use of employer-provided cell phones as a fringe benefit, Dow Jones reported.

The Dow Jones news report said the IRS is considering simplifying existing recordkeeping requirements about employee cell phone use. The IRS proposal would be for a safe harbor rule deeming 75% of work cell phone usage to be for work and 25% to be personal and taxable as a fringe benefit, Dow Jones explained.

Current law already requires that the value of those cell phone services be included in a worker’s gross income, unless the employee keeps detailed records showing that the phone is used for work only.

But Dow Jones said as a practical matter, many companies don’t enforce the recordkeeping requirements.

The story said the IRS also proposed as alternatives:

  • employees could satisfy the reporting requirement by showing proof that they maintain a personal cell phone for use during work hours.
  • employers could use statistical sampling to determine what portion of their workers’ use of cell phones is personal and how much work-related.

The IRS will accept comments from the public regarding the proposals until September 4.

A diverse coalition including local government groups, college administrators and farm groups is seeking legislation to remove cell phones from the types of property that are taxable fringe benefits, in the absence of strict recordkeeping, the Dow Jones story said.

For more information, see page 13 of Internal Revenue Bulletin 2009-23.