Monday, June 15, 2009
Following up on my prior posts (here and here): today's Wall Street Journal editorializes against the IRS's recent notice on taxing employee cell phone usage: The IRS Phones Home: What's Next, a Tax on Each Sip of Office Coffee?:
The IRS believes that some percentage of the costs incurred by employees using company-provided wireless devices should count as a "fringe benefit" and thus be subject to taxation. Since workers inevitably end up taking personal calls or emails, the thinking goes, it's only fair that they pay for the privilege. What's next? Maybe a per-cup tax on office coffee, or targeting furtive visits to ESPN or Hulu on the office PC? As one wag put it on the Journal's Web site, "It's like charging for the use of the company washroom." ...
The political class may come to regret stepping into this minefield, however, and not only because this is precisely the sort of common non-sense that incites tax revolts. It's one thing if the next Tom Daschle forgets to pay taxes on his company chauffeur. But it'll be quite another if the next nominee goes down for taking too many personal calls without giving the government its due.
But the Wall Street Journal also reports that IRS Defends Tax Proposal for Employer-Issued Mobile Phones, by Martin Vaughan:
The IRS defended its proposals to enforce a law that taxes personal use of employer-provided cellphones, saying the changes are aimed at helping businesses comply, not taxing individuals. ...
A senior IRS official Friday said the agency is more concerned about making sure employers deduct the correct amounts for cellphone equipment and services provided to employees, than it is about taxing those employees on benefits. ... Marianna Dyson, a lawyer at Miller and Chevalier who specializes in the taxation of employee benefits, said that as a practical matter, the IRS proposals would affect both the business and the employee.
For instance, if IRS implemented its proposal to limit business deductions to 75% of the value of the employer-provided cellphones, and deem the rest personal use, the remaining 25% would have to be counted in an employee's gross income. That would trigger both income tax and payroll tax withholding requirements on the employee's wages. "If they decide 25% is personal use, guess what? It is a wage, and you have to withhold on it," Ms. Dyson said. "For IRS to suggest this would have no impact on employees, is a little disingenuous."