There are a lot of fringe benefits making the news these days. But none with as much confusion as cell phones and the taxation thereof. If you follow IRS regulations closely you know there is an entity known as the property list. Items on this list are subject to taxation if used by employees for personal use. For example, company cars are on the list. And so are cell phones. They came on the list when they were first introduced way back when they were big clunky things with battery packs. Back then only executives, company owners or those who were a bit bucks up had cell phones. Over time they have gotten smaller, smarter and cheaper. But they are still on the property list. Therefore even though they are common place at work and every second employee gets one, the personal use is still taxable wages to the employee.
Now the reason why I say they are in the news is because last year the IRS was asked to come up with a way to make the taxation easier to track and maintain. You see the only way to do it is to take each cell phone bill for each phone for each employee and total up the personal calls. For some companies this requires an army of accounts payable clerks, so they weren’t doing it. So the IRS came up with three ways to account for the usage without having to actually review each bill. Unfortunately CNN and the other news outlets got a hold of the IRS Notice announcing the new methods and asking for comments. The IRS must always ask for comments from the public before implementing a new method for this type of thing. Next thing you know CNN and the Wall Street Journal are announcing that cell phone are NOW taxable! Like they weren’t before? Of course they were. They always have been. And it has always been enforced.
Well the blogosphere went nuts with everyone up in arms and attacking the IRS for daring to tax our cell phones. They called for the IRS to cease this taxation attempt immediately. But what was not explained was the property list and how the IRS has no control over what goes on it. It is totally controlled by Congress.
In reaction to this uproar a new bill has been debated and passed in the House. H.R. 4994, the Taxpayer Assistance Act of 2010. Introduced by Rep. John Lewis, this bill calls for cell phones to be taken off the property list immediately. It has been sent to the Senate and is currently in the Committee on Finance. But this is not the first time that the House has attempted to take cell phones off the property list. But the bill always dies in the Senate. So payroll professionals and anyone who cares about taxing fringe benefits, now is the time to act. You need to write or call your senator and let them know you want this passed in the Senate and made law.
Just remember if we don’t get this passed we are taxing cell phones as before.