Update: This article was originally written in 2017 and updated in 2020. Creating a policy for employee mobile phone reimbursement can be tricky. Unlike rules for other business expenses, IRS guidance on cell phone reimbursement is ambiguous and in a state of flux. To date in 2020, no single model of cell phone reimbursement has become an industry norm. Finance departments need to carefully consider their unique model for reimbursing employees for personal technology. This article presents a tactical approach to creating a cell phone policy. Ultimately, we recommend that you use your employee expense workflow to reimburse each employee either $50 or $75 a month. This policy is IRS-compliant, scalable, and convenient for employees and finance admins. Please note: Abacus does not provide accounting advice. Speak to an accountant to determine the particular needs of your business. (Psst… you may also find our complete guide to business policies helpful)Back to Blog
Creating a Cell Phone Reimbursement Policy
First, make three core decisionsThe tax regulations of cell phone reimbursement boil down to three questions the company must answer:
- Is reimbursement right for your business? Or do you want to provide company phones?
- If you decide to reimburse employees for their cell phone use, should you do so under an accountable or non-accountable plan?
- How much should you reimburse each employee?
BYOD or COPE?The question: “Is reimbursement right for your business? Or do you want to provide company phones?” It’s time to look into whether to reimburse employees for part of their monthly cell phone bill or to implement a corporate cell phone program — BYOD or COPE. What is COPE? Eighty percent of enterprises provide mobile devices to employees, which is a policy known as “corporate-owned, personally enabled” technology, or COPE. This approach is attractive to companies with particular concerns over data security and compliance. But to obtain this added control, companies have to manage big mobile contracts involving dozens — sometimes hundreds — of devices. The COPE cost is almost always higher than a reimbursement policy would be. Employees generally don’t like carrying two devices, and they always prefer using their own. What is BYOD? The expense and hassle of providing corporate-owned cell phones is what has led to the rise of reimbursement plans, colloquially known as “bring your own device.” BYOD is a more scalable, affordable, employee-oriented policy than COPE. The security trade-off is small for most companies: you probably don’t need to listen in on employee conversations and track their physical movements. You just need them to be able to speak to clients and work remotely. The answer: Since most companies only need to meet that limited use case, BYOD — or reimbursing employees for personal devices — is simpler and cheaper than providing phones. But COPE options do exist.
Accountable or non-accountable?The question: If you decide to reimburse employees for part of their monthly cell phone bills, the next question is whether to do it under an accountable or non-accountable plan. Choosing an accountable plan means that you, the employer, are willing to be responsible for collecting and reporting extra documentation to the IRS in order to spare your employee from reporting their reimbursement as taxable income. In order to be accountable, your cell phone reimbursement policy must satisfy three requirements:
- The expense has to prove a business connection. This requirement is met by showing that the use of a cell phone is ordinary and necessary, and that it took place as part of the employee performing their job.
- It has to be accounted to the employer in a timely manner.
- The employee must return any excess reimbursement. The best way to handle this is simply to not reimburse them in excess of what they’re owed. We’ll cover this in the next section.
What level of cell phone reimbursement do we provide?The question: How much should our cell phone reimburse policy actually reimburse employees? Another way to avoid excess reimbursement is to require the employee to submit the cell phone bill as part of the expense, the way you’d require a receipt for a client meal expense. That way, you’ll be able to see the total bill amount and avoid reimbursing more than that. Thanks to a few rule changes over the past few years, IRS guidelines now require far less documentation to support the dollar amount of mobile reimbursements. Back when cell phones were treated as listed property, companies had to be prepared to justify the level of reimbursement based on the percentage of business versus personal usage the phone had each month. That meant call logs with highlighted line-items and inconsistent reimbursements month-to-month. Now that the reporting requirements have relaxed, you mostly need to ensure that you reimburse reasonably and not in excess. Simple. Solve the reasonable part by being consistent. With standard, company-wide reimbursement levels, it’s easy to defend any given reimbursement, should the need arise. That’s probably why so many businesses use this approach. Implement a two-tier system that applies to everyone in the company who needs cell phone reimbursement. Pay a set dollar amount to lighter cell phone users and a higher dollar amount to more frequent users. The answer: You’ll decide on your own reimbursement levels, but we suggest $50 for low business use and $75 for high business use. The average monthly cell phone bill last year was $99, according to the Bureau of Labor Statistics Consumer Expenditure Survey. This means that high-use cellular bills probably exceed that amount comfortably. Also, $75 is an informal de minimis threshold for expenses, since below that IRS regulations don’t require receipts to accompany deductible expense claims. Regardless of where you set your dollar amounts, it’s critical that any reimbursement be less than the employee’s total bill. Even if an employee uses their personal cell phone entirely for business, but pays only $73 a month, you’re still not allowed to reimburse them $75. That’s $2 in excess, which constitutes income, which means they either have to return that money to the business or report their entire reimbursement as income. Reimburse them at a lower tier and avoid this problem.
Our recommendation for your cell phone reimbursement policyEvery company will have different mobile technology needs, but our suggestion for an optimally scalable mobile policy is to:
- Reimburse personal cell phone use,
- Through your expense management workflow,
- In two consistent tiers across the company, always less than the total amount of the bill.