Baylor University
Tax & Compliance Department
Financial Services

Cellular Phone Policy & Procedures

Acquisition Procedure

University personnel wishing to acquire the use of cell phones and services for business purposes are directed to the Information Technology Services - Cellular Devices and Data Plans webpage. University Mobile Device Guidelines and Device Requests are maintained there.

Tax Consequences

Overview

Congress passed Section 2043 of the Small Business Jobs Act of 2010 which reclassified cell phones as no longer under the IRS “listed property” definition.  This change in the law removed the requirement for strict substantiation of all business calls in order to be excluded as a taxable benefit.   In September 2011, the IRS issued Notice 2011-72 (Notice) which provided further guidance concerning the tax treatment of cell phones as applicable to use of an employer-provided cell phone.  The Notice states that the IRS will treat the business use of a cell phone as a working condition fringe benefit when an employer provides an employee with a cell phone primarily for noncompensatory business reasons. 

The provision of a cell phone will be primarily for noncompensatory business reasons if there are substantial reasons relating to the employer’s business for providing the employee with a cell phone.   A noncompensatory business reason is the employer’s need to contact such employee at all times for work related emergencies or for other legitimate business reasons.  A cell phone simply provided to promote good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation is not provided for noncompensatory business reasons.

A cell phone provided primarily for noncompensatory business reasons will result in the following: 

  1. Substantiation requirements under IRS Code Section 162 are deemed satisfied, and the value of use will therefore be excluded from the employee’s income.  
  2. IRS will treat the value of any personal use of the cell phone as a de minimis fringe benefit.
Applied Taxability

University-Provided Cell Phone

Effective October 2011, retroactive to the January/February 2011 cell phone statement, the monthly service plan amount paid for an employer-provided cell phone plan will not be taxed to the employee if there is a valid noncompensatory business reason for the employee’s use of the cell phone (see above Overview).  A department must verify that the usage of each University-provided cell phone to an employee is primarily for noncompensatory business reasons.  In adherence to the IRS requirement of “primarily for noncompensatory business reasons,” the choice of cell phone coverage paid for by a department should correlate with what is needed by an employee to fulfill his/her job requirements.  A cell phone provided an employee other than for noncompensatory business reasons will result in taxable income, and the department must notify the Payroll Office of such benefit.

Personal Cell Phone - Reimbursement

A budget decision can be made as to whether a University department will reimburse business calls made on an employee’s personal cell phone.  Reimbursement will be dependent on the availability of budget funds. 

If a department determines that a cell phone is needed by an employee and the employee is allowed to use his/her own personal cell phone and be reimbursed for the phone coverage plan, then the taxability will be handled as explained above under the University-Provided Cell Phone section.  The employee’s monthly bill must be submitted to substantiate the reimbursement.

If a department determines that an employee does not need a cell phone but decides to reimburse for specific business calls made by an employee, then the department’s reimbursement must be reasonably calculated so that the actual expenses incurred are not exceeded.  Additionally, reimbursement of business calls in this situation will require that the monthly bill be submitted and each call for which the employee seeks reimbursement must be substantiated as to the business purpose. (Top)