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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I own a small business with seven employees. The company pays

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I own a small business with seven employees. The company pays for several of my employee's cell phone/blackberry bills because they use them extensively for work. Someone just told me I can't do that. I have to let them pay the bill and reimburse them and call it compensation. Is that correct?



You can only pay the portion of their cell phone bills that actually pertain to business calls. If you pay for their entire cell phone bill and even a small portion of the cell phone was used for personal use, then you would have to include that amount as compensation on their W-2 form, as it is considered to be a taxable fringe benefit.


Most cell phone providers provide or can provide a detailed billing statement. You would need to have your employees turn in a copy of their detailed statement and have them clearly mark which calls were for business and which calls were for personal reasons. You could then just pay them for the actual percentage of their business use, and thereby avoid having to add any amount as compensation to their earnings statement.


I am giving you a link below to the IRS Taxable Fringe Benefit Guide. Please refer to page 59 which address the issue of cell phones.


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Thank you.


Customer: replied 8 years ago.
To avoid all of that paper work, would it be okay just to give them enough of a raise to pay the entire bill themselves and avoid separating the business and personal calls. Also, it would be impossible to separate business and personal emails on ma blackberry.

Hello again Terri,


Certainly you can give them a raise of any amount you like, however, the raise would of course need to be included in their taxable wages.


You are correct, it does get difficult to separate business and personal emails, and in such a case the employee would actually have to keep a log himself of each and every call and/or email which could be quite cumbersome.


These rules were first put in place by the IRS back in the 90's when cell phone calls were a lot more expensive than they are now, so there are currently some talks about changing these antiquated rules. But for now that's what you have to stick with.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you.



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