Are Corporate Provided Smart Phones a Taxable Benefit?

Telecommunications and taxes are inseparable. In the United States a tax and surcharge burden of 20% to 40% or more on a telecom invoice is not uncommon.

There’s another type of tax for employers to consider, though, when providing cell phones and similar telecom devices to employees – the fringe benefit tax. The Internal Revenue Service (IRS) updates guidance on fringe benefits periodically, and cell phones are addressed in “IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits.”

There are two key items to consider before answering the question – Is a corporate provided cell phone/smart phone/telecom device a taxable fringe benefit? First, determining the purpose behind the employer providing the device to an employee. Second, is the degree of personal benefit received by an employee from the device.

The first determination establishes whether the device is being provided primarily for business use. If so, the device is considered ‘noncompensatory’ and, therefore, is not subject to taxation as a fringe benefit. The second determination is the degree personal benefit received from the provided device; if there is minimal benefit, then it is not a fringe benefit. The IRS states “[a] de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.”

So, if the primary purpose of the cell phone/smart phone/telecom device is for business use and the personal benefit is minimal, then it is not taxable as a fringe benefit. Conversely, according to the IRS, “Cell phones provided to promote goodwill, boost morale, or attract prospective employees,” are subject to the fringe benefit tax.

Interpretations of IRS rules are subject to a variety of factors. Always consult a trusted tax resource to determine the most appropriate application of IRS rules to your business situation.