If you provide your employee with a cell phone (or another handheld communication device) that you own, to help carry out their employment duties, the fair market value (FMV) of the cell phone or device is not a taxable benefit.
However, if you reimburse your employee for the cost of their own cell phone (or another handheld communication device), the FMV of the cell phone or device is considered a taxable benefit to the employee. This is the case even if the employee used, lost, or damaged the cell phone or device while carrying out their employment duties.
If you pay for, or reimburse the cost of an employee’s cell phone service plan, or Internet service at home to help carry out their employment duties, the portion used for employment purposes is not a taxable benefit.
If part of the use of the cell phone or Internet service is personal, you have to include the value of the personal use in your employee’s income as a taxable benefit. The value of the benefit is based on the FMV of the service, minus any amounts your employee reimburses you. You can only use your cost to calculate the value of the benefit if it reflects the FMV.
For cellular phone service only, we do not consider your employee’s personal use of the cellular phone service to be a taxable benefit if all of the following apply:
- the plan’s cost is reasonable
- the plan is a basic plan with a fixed cost
- your employee’s personal use of the service does not result in charges that are more than the basic plan cost
You, as the employer, are responsible for determining the percentage of employment use and the FMV. You have to be prepared to justify your position if we ask you to do so.
Note
If you give your employee an allowance for cellular phone or Internet services, the allowance must be included in the employee’s income.