Cell Phone Reimbursement

[Burke]

Church has ministers submit their phone bills each month for reimbursement. However, what is happening is that only $50 per month charged to church credit card. Then church deducts as an expense. Since this is the same as a flat amount, shouldn't it be included in the W-2?

[MAMalody]

Does the church have an accountable reimbursement policy?

[ddoshan]

Does the church have an accountable reimbursement policy?

I've mentioned and been confused about this before. What is an accountable reimbursement policy. They may very well have some policy to reimburse some expense. But if this expense is not for legitimate tax deductible expenses by the taxpayer how can it be an accountable plan. Would not such reimbursements still have to be included in the W-2.

Not saying that everything is not OK as is. Just that I do not quite understand I guess.

[Burke]

They do have an accountable plan. Phone bills are submitted to substantiate that they are at least $50+. If so, they get $50 per month paid to them (i.e, it is charged on the church credit card -- same thing). Other expenses submitted are paid in full, just the phone bill is limited to $50 per month. Normally, expenses paid under an accountable plan are not taxable and not deductible. I suppose it would work the same as mileage paid at a lower rate than the IRS rate. The employee calculates the full IRS rate, and then reduces it by the amt reimbursed for deduction purposes on his tax return.

[ddoshan]

They do have an accountable plan. Phone bills are submitted to substantiate that they are at least $50+. If so, they get $50 per month paid to them (i.e, it is charged on the church credit card -- same thing). Other expenses submitted are paid in full, just the phone bill is limited to $50 per month. Normally, expenses paid under an accountable plan are not taxable and not deductible. I suppose it would work the same as mileage paid at a lower rate than the IRS rate. The employee calculates the full IRS rate, and then reduces it by the amt reimbursed for deduction purposes on his tax return.

I get that an employer may very well have some plan to reimburse an employee for whatever. However, say the employer has a plan to reimburse the employee for getting lunch at McDonalds every day because they want him or her back in the office ASAP rather than taking an hour to run home each day. All I am trying to say is, that to be a so called accountable plan doesn't the reimbursement have to be for legitimate employee business expenses. Otherwise, the reimbursement should be included on the W-2. Are the phone bills legitimate business expenses. Maybe they are. Just wonder if they are and, if not, then reimbursements should be included on the W2.

Same for mileage. Such as in a previous recent post. The employer may very well reimburse an employee for mileage based on some plan they have. But if the mileage is not a legitimate business expense then ....

[Burke]

Yes, the usage of the phone is for business, and is a legitimate business expense.

[Koss]

Accountable Plan

Here's the definition of an accountable plan, from IRS Publication 463:

- - - - -
To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules:

1. Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.

2. You must adequately account to your employer for these expenses within a reasonable period of time.

3. You must return any excess reimbursement or allowance within a reasonable period of time.
- - - - -

The problem that I see with what is described in the original post is...

(1) there is no requirement to return any excess reimbursement, and

(2) even if there was such a requirement, it is impossible to determine whether an excess reimbursement has occurred.

The amount of the reimbursement is arbitrary. They give the employee the first $50 of their cell phone bill, regardless of how much or how little the phone is used for business. I don't think this is an accountable plan.

The real problem, of course, is that most cell phone plans now have unlimited minutes, and even unlimited text messaging. Even the ones that don't usually have unlimited nights and weekends. So it is difficult to impossible to make any reasonable allocation of the cell phone bill to business use.

With all that being said...

The IRS appears to have taken a common-sense approach to this issue. (What a surprise! ) In a memo issued to IRS examiners back in 2011, the IRS said that an employer can reimburse an employee "for the monthly basic plan expense to enable the employee to maintain contact with business clients throughout the United States after hours," and that the reimbursement is not taxable income to the employee.

Here's the memo:

http://www.irs.gov/pub/foia/ig/sbse/sbse-04-0911-083.pdf

The memo is an extension of IRS Notice 2011-72, which addressed the treatment of employer-provided cell phones. You can read that notice here:

http://www.irs.gov/pub/irs-drop/n-11-72.pdf

BMK

[Burke]

Yes, cell phones have changed the world. Most are not employer-provided, however, but individually owned (leased, really since you can upgrade them and a term contract is signed). Not only that, many are on "family plans" for discounts. I don't think that it should be challenged that a minister needs to be reached in emergencies and after hours. My son is a pastor, and I can assure you that he is always "on call." He goes to hospitals in the middle of the night. The issue is, how do you allocate business use? Especially with smart phones, that take pictures, videos, play games, etc. etc. And what the IRS is willing to allow.