June 9, 2014
Recently, Cannon Group has received many inquiries regarding whether or not stipends and reimbursements for mobile services are taxable.
The short answer: It depends. Here’s what you need to know…
On September 14, 2011, the IRS issued Notice 2011-72, which provided guidance on the tax treatment of mobile devices and other telecom equipment that employers provide to their employees for business reasons.
The IRS announced that if the cell phone is provided for non-compensatory business reasons, any personal use of the cell phone will be deemed excludable as a de minimis fringe benefit (exempt from tax).
To satisfy the non-compensatory business reason requirement, an employer must demonstrate his or her need for constant contact with the employee for work-related issues. Alternatively, the employer must demonstrate that the employee has a need for constant contact with clients or others when the employee is out of the office or outside of normal working hours.
Notice 2011-72 did not provide guidance on the treatment of stipends issued to defray the costs for personally-owned mobile devices and other telecom equipment used for business reasons. That’s why a follow-up memorandum was issued, clarifying that records must be kept to deem stipends excludable as a fringe benefit.
So, if an employer does not require the employee to document the business expense on the personally-owned device, the stipend issued is taxable. Likewise, if the employer and employee document the expense, the stipend or reimbursement amount is not taxable.
To ensure compliance with IRS regulations, employers seeking to reimburse employees for use of personally-owned mobile devices and other similar telecommunication equipment must ensure that:
1) The company’s mobile policy defines employee eligibly for reimbursement as employees whose job duties require the need for constant contact for business reasons.
2) The employees are required to submit a copy of an already paid mobile invoice.
3) The company retains the copy of the mobile invoice (for discovery purposes).
4) The amount issued does not exceed the total charges on the invoice.
5) The stipend or reimbursement is processed under the monetary guidelines set in the mobile policy.
Setting the right monetary policy for your company’s mobile policy can help your company and employees save money and avoid the issue associated with stipends being taxable under IRS regulations. Cannon Group is available to help review your company’s mobile policies.
NOTE: Cannon Group strongly recommends that companies review any mobile policy prior to implementation, with their respective Human Resources, Legal, Finance, Information Technology and Accounts Payable departments to ensure compliance with company regulations.
Simon Zaccardi runs our Managed Services team, focusing on growth capacity, efficiency, new tools and delivering great value. He has helped some of our largest clients through successful negotiations, contract compliance audits and expense reduction projects.