The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a "fringe benefit."
The Internal Revenue Service proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.
The IRS, in a notice issued last week, said employees could avoid tax liability if they showed proof they used personal cell phones for nonbusiness calls during work hours. The agency also could decide on a set number of phone minutes as "minimal personal use" that would be untaxed.
In a third option proposed by the IRS, employers could use a statistical sampling to determine what portion of workers' cell phone use is personal and how much is work-related. Workers would be taxed on the difference.
The IRS move, which is spurring efforts by the wireless industry and others to kill the idea, would mark a stricter enforcement of an existing rule that classifies employer-provided cell phones as a taxable benefit, rather than a 24-hour-a-day work tool.
Under a 1989 law, workers who use company-provided mobile phones for personal calls are supposed to count the value of those calls as income and pay federal income taxes accordingly.
But businesses and workers have long ignored the requirement, prompting the IRS to consider steps the agency said would make it easier for businesses and workers to comply.
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"The idea that you should keep a log saying, 'I made a call saying I will be late for dinner again,' that's a totally cumbersome and burdensome requirement that most employers and employees are not going to comply with," said Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, a trade group of cell-phone-equipment manufacturers and service providers.
"It would be a nightmare for corporations to try to figure out what are work calls and what are personal calls," said Gerry Coady, chief information officer at Frontier Airline Holdings (FRNTQ, news, msgs), who manages about 100 BlackBerrys for workers at the Denver company.
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"Your job gives you a phone to be in 24-hour contact. It's only natural that you're going to use it personally," said Anthony Cecchini, an analyst at investment bank Oppenheimer. "If I need to get a personal e-mail or call, it shouldn't be a big deal."
Individual taxes on employer-issued cell phones and smart phones would depend on the annual cost of the wireless service, as well as an employee's tax bracket.
The IRS didn't respond to requests for interviews on the tax. The agency will collect comment on its proposal through September before issuing a decision.
Continued: 'A regulation from a bygone time'
