As many as 98% of organizations provide full or partial cell phone reimbursement to employees for their mobile phone expenses.
You might have a few questions about mobile phone reimbursements. How do you handle mobile phone reimbursements when it comes to taxes? Are cell phone reimbursements required by law? Read on for the scoop.
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What is a cell phone reimbursement?
Sometimes, an employer provides a cell phone to employees for work. Other times, employers offer a mobile phone reimbursement.
A cell phone reimbursement is an employee benefit where an employer covers work-related mobile phone expenses.
Mobile phone reimbursements may cover:
- Monthly service plans
- The cell phone
- Data overages
- Apps needed for business
Employees can use their personal phones for business purposes and receive reimbursement. This saves you from giving employees a company-provided phone—which can be expensive—while also offsetting your employees’ costs.
| How Does a Cell Phone Reimbursement Work? (Example) |
|---|
| Your employee uses their cell phone for both business and personal purposes. Their service plan charges a flat monthly rate for a certain number of minutes. You reimburse the employee for the monthly service plan expense so they can contact business clients after work hours. |
Is a cell phone reimbursement taxable?
A mobile phone reimbursement is a type of employee benefit. Employee benefits can be taxable or excludable (aka nontaxable).
According to guidance from the IRS, cell phone expenses used primarily for noncompensatory business reasons are nontaxable.
Nontaxable treatment applies to both:
- Employer-provided cell phones
- Cell phone reimbursements and cash allowances for work-related use of personal phones
And here’s the best part: The IRS does not require recordkeeping of the business use of cell phones to receive the tax-free treatment.
| What Qualifies for Nontaxable Cell Phone Reimbursements? (Examples) |
|---|
| 1. You need to contact the employee at all times for work-related emergencies. 2. You may require that the employee be available to speak with clients outside of in-office hours. |
Keep in mind that nontaxable treatment does not apply to:
- Reimbursements of unusual or excessive expenses or reimbursements that substitute a portion of the employee’s regular wages
- Example: reimbursement for international cell phone coverage when the employee’s business clients are local
- Cell phones or reimbursement for cell phones that are not primarily business-related
How much is a cell phone reimbursement?
Most businesses provide a phone reimbursement between $30 – $50 per month, per employee, with the average being $40.20.
The amount you reimburse your employees for cell phone usage varies depending on how they use their phone for business.
For example, you may offer a $3 – $4 monthly reimbursement to an employee using multi-factor authentication (MFA) on their phone to log into their business email.
Keep it real: Again, the reimbursement amount should be usual and not excessive to qualify for nontaxable treatment.
Are expense reimbursements required by law?
Federal law typically doesn’t require that employers provide expense reimbursements. However, you must reimburse nonexempt employees if work-related expenses drop their wages below minimum wage.
Some states do require employers to provide expense reimbursements. For example, employers in California and Illinois may need to reimburse employees for cell phone expenses. Check with your state for more information on expense reimbursement requirements.
What to include in a cell phone reimbursement policy template
Creating a clear mobile phone reimbursement policy helps you and your employees get on the same page. Your policy can set expectations and define reimbursement amounts, eligibility, and more.
Consider including the following in your cell phone reimbursement policy:
- Covered expenses
- Reimbursement amount allowable
- Approval process
- Tax disclaimer
1. Covered expenses
What phone expenses are eligible for reimbursement?
Include what your reimbursement covers, such as a monthly phone service plan, business apps, or international data plans.
2. Reimbursement amount allowable
How much can employees receive for mobile phone reimbursement?
First, decide how you’ll reimburse employees. You may choose to offer a flat cell phone stipend or reimburse employees for their actual business use.
| Cell Phone Stipend | Actual Cell Phone Reimbursement |
|---|---|
| Pay employees a flat rate per month | Pay employees based on their business use of cell phone |
Regardless of which method you use, set a reimbursement limit. For example, you might cap cell phone reimbursements at $50 per month.
3. Approval process
Do employees need to submit documents to receive reimbursement?
Include information about how they can start the reimbursement process, such as:
- What form to submit
- How often to request reimbursement
- Additional documents (e.g., cell phone bill)
4. Tax disclaimer
Can employees expect to pay taxes (e.g., federal income tax withholding) on their cell phone reimbursement?
Typically, cell phone reimbursements are nontaxable to the employee. Include a section in your policy that states whether reimbursements are nontaxable.
Should you offer a mobile phone reimbursement?
Reimbursing your team for their cell phone expenses can be a great way to improve morale, comply with state or local laws, and ensure fairness.
However, you’ll probably opt to skip reimbursements if you issue company-provided phones or don’t require personal phone use.
Either way, review your state laws and create a clear policy that details whether employees can expect reimbursements.
This is not intended as legal advice; for more information, please click here.
