When must an employer include the fair market value of an employee's personal use of a company-provided cell phone in the employee's taxable income?

Author: Alice Gilman

If an employer provides an employee with a cell phone for a substantial noncompensatory business purpose, the employee's personal use of the phone is a tax-free de minimis fringe benefit. An employer has a substantial noncompensatory business purpose if, for example, it must be able to contact the employee at all times for work-related emergencies, the employee must be available to speak with clients when the employee is away from the office or the employee needs to speak with clients located in other time zones at times outside the employee's normal workday.

On the other hand, an employer that provides cell phones to employees to increase their morale, as part of their compensation or to attract new employees must value and tax employees' personal use of the phones.