Tax Man's Target: The Mobile Phone

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 this week, said employees could avoid tax liability if they showed proof they used personal cellphones 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' cellphone 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 cellphones as a taxable benefit, rather than a 24-hour-a-day work tool.