mocoNews - Got A Company-Paid Cellphone? The IRS Wants To Tax Your Personal Calls

Does the company you work for pay your cellphone contract? If it does, the IRS wants you to pay tax on it for being what it calls a "fringe benefit." According to the WSJ.com, the rule in which company cellphones are considered a taxable benefit rather than a 24/7 work tool actually dates back to 1989, but that the IRS is planning a "stricter enforcement" of it since it has been largely ignored. In a notice put out this week, the agency has proposed several options:

Minimal Personal Use Method: Workers could avoid the tax if they can prove they use their own personal cellphone during non-working ours. The IRS is also considering a set number of phone minutes that would be designated as "minimal personal use" that would not be taxed.

Safe Harbor Substantiation Method: Employers assign 25 percent of an employee's annual phone expense as a taxable benefit. As the WSJ works out, for a worker in the 28 percent bracket, an annual phone bill of $1500 footed by a company, could add another $105 in federal tax.

Statistical Sampling Method: Another option is that companies could use a statistical sampling to figure out how much of their workers' bills are for personal calls and how much is for work. Employees would then be taxed on the personal calls.

Obviously, no one's happy about the agency's renewed interest in collecting taxes on personal calls from company cell phones. According to In-Stat, US businesses will pay an estimated $59 billion for their employees cellphone bills in 2009. Carriers worry that employers will simply cancel company phone contracts and reimburse their employees for their work related calls. Employers don't like it because of the "nightmare" of delineating between personal calls and work calls. For example, if you call your husband to tell him you're going to be late because of work, is that a work call or a personal call? Then there's the record-keeping involved and the time and paperwork that it will require. Employees, of course, don't want to pay more tax, and argue that their companies give them a cellphone to be in contact, often, around the clock. If a company can demand that of an employee, what are a few personal calls going to matter? Carriers also argue that with the advent of flat rate plans where users get unlimited calls for one monthly fee, the IRS proposal is actually an outmoded one, and will require companies to keep track of "nickels and dimes."

The IRS is currently collecting public comment on the proposal, which should be submitted before September 4.