Payments
Policy
FIACCT 05-05_00 Payments – Cell phone and home internet service – state-provided, employee allowances or reimbursements
Effective: October 29, 2021
Revised: March 30, 2023
Reviewed: March 30, 2023
Purpose
This policy provides requirements and guidance regarding state-provided cell phones, iPads, other tablets, and home internet service, as well as employee reimbursements and allowances for personal cell phones, internet access services, and other telecommunication expenses. Agencies and employees should ensure this policy is followed in order to properly comply with applicable Internal Revenue Service (IRS) regulations. This policy is subject to change at any time as IRS regulations change.
This policy does NOT cover state-provided laptops or allowances for the business use of an employee’s personal computer, including laptops.
Definitions (for purposes of this policy)
Cellular Device – A portable telephone that uses wireless cellular technology to send and receive phone signals, including but not limited to iPhones and smartphones. Tablet devices, such as iPads, are also considered cell phones for purposes of this policy.
Employee – Includes employees, board members, interns, volunteers, consultants, contractors, or anyone to whom a state agency provides the services or allowance for the services covered under this policy.
GovOps – This refers to the Department of Government Operations.
Home Internet Service – A cable, phone line, or other type of service that allows access to the internet from the employee’s home.
IRS Requirements
Cell Phones – IRS Notice 2011-72 allows the value of an employer-provided cell phone (or similar telecommunication equipment) to be nontaxable, as a working condition fringe benefit, if it is provided primarily for noncompensatory business purposes. A noncompensatory business reason exists if there are substantial business reasons for providing the cell phone, such as, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside the employee’s normal workday. Additionally, the IRS allows the value of any personal use of an employer-provided cell phone to be nontaxable, as a de minimis fringe benefit, if the phone was provided primarily for noncompensatory business reasons.
IRS Notice 2011-72 also clarifies that a cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes. Therefore, cell phones provided for these reasons are considered taxable fringe benefits.
The IRS Internal Revenue Manual (employment tax – 4.23.5, scroll down to 15.3.2 – Employer Payments for Employee Cell Phones) issued similar guidance on allowances or reimbursements received by employees for the required business use of their personal cell phones. This guidance extends to both the cost of the phone and any related voice or data plans. For the allowance or reimbursement to be nontaxable, the employee must maintain the type of cell phone coverage that is reasonably related to the needs of the employer’s business, the reimbursement must be reasonably calculated so as not to exceed expenses the employee actually incurred in maintaining the cell phone, and the reimbursement for business use of the employee’s personal cell phone must not be a substitute for a portion of the employee’s regular wages.
Home Internet Service – The IRS has not clarified or reduced the record keeping requirements when an employee receives an allowance for the business use of an employee’s home internet service, or when home internet service is provided or paid for by the employer. According to IRS regulations, personal use of this home internet service is taxable to the employee unless the employee’s use is considered de minimis, meaning the personal use is short and infrequent, or if thorough and timely records are kept showing the amount of time of personal vs. business use, and any excess allowances are returned by the employee in a timely manner.
Policy
I. Business Need Must be Justified – The agency must justify an employee’s business need for a cellular device or home internet service. See IRS requirements above. If the business need cannot be clearly identified, no such services or allowances shall be provided.
II. Most Cost-Effective Method Considering Business Needs – When determining whether an employee should receive a state-provided cellular device or a reimbursement or allowance for a personal cellular device, the agency shall determine the most cost-effective method of providing the employee with the services that meet the agency’s business needs and the data security requirements of the agency and the GovOps Division of Technology Services (DTS). For example, if an employee uses their personal cellular device for business occasionally, a reimbursement to the employee based on business use and actual expenses may be appropriate.
If an employee uses their cell phone for business on a regular basis, then an allowance given each pay period may be appropriate. If an employee is required to extensively use a cell phone for business, then a state- provided cell phone could be more appropriate.
III. Agreement Between Employee and Agency – The agency shall complete an agreement (agreements can be found at finance.utah.gov/forms-2-2-2-2/) documenting the business need for the service; how the service will be provided and used; how the employee will be compensated i.e., allowance/reimbursement if applicable; and any other related conditions. This agreement is to be signed by the employee and the supervisor. Agreement templates are available on the GovOps Division of Finance website. A new agreement shall be completed when changes to a plan or business need occur. However, agencies should review all employees who receive state-
provided cellular devices, allowances, or reimbursements periodically to ensure the business need still exists and that arrangements are appropriate.
IV. Cellular Device: Nontaxable – As noted above in the IRS Requirements section, the value of a state-provided cellular device or reimbursement or allowance is not taxable if there is a noncompensatory business reason. Generally, the personal use of a state-provided cellular device is considered a de minimis fringe benefit if it was provided primarily for a noncompensatory business reason.
The standard maximum allowance or reimbursement amount is up to $50 per pay period or $108 per month. Agencies may set a higher or lower amount for an employee or group of employees depending on the business needs, costs, and other applicable factors. However, any allowance amount that is greater than the above amount must be approved by the GovOps Division of Finance Director. The allowance or reimbursement amount should be calculated on the services needed for business purposes, must never exceed the actual cost of the service, and should not include extra services used for personal reasons. Costs can be minimized by using the average cost of the agency’s state issued cell phones in comparison to the employee’s actual cell phone bill to determine the appropriate allowance or reimbursement amount. For agencies that do not have state issued cell phones, the agency can use $50 per month as a base for the service, which approximates what the state pays for a typical unlimited plan. The agency can then add device costs and other costs, if appropriate.
Employee allowances for the business use of personal cellular devices shall be processed as nontaxable through the State Payroll System. The employee must keep a copy of their cellular device bills for at least one year for audit purposes. Employee reimbursements for the business use of personal cellular devices may be paid on a GAX payment voucher in FINET or be processed as nontaxable through the State Payroll System. A copy of the cell phone bill must be included in the payment supporting documentation.
V. Cellular Device: Taxable – As noted above in the IRS Requirements section, the value of a state provided cellular device or reimbursement or allowance provided for compensatory reasons are taxable and must be approved by the agency’s executive director or designee.
The value of a state-provided cellular device must be reported to the GovOps Division of Finance Payroll team, so its value can be added to the employee’s taxable gross income. Employee allowances shall be processed through the State Payroll System as taxable income. The employee must keep a copy of their cellular device bills for at least one year for audit purposes. Employee reimbursements of cellular device bills may be processed through the State Payroll System as taxable income or paid on a GAX payment voucher in FINET and reported to the GovOps Division of Finance Payroll team to be added to the employee’s taxable gross income. A copy of the cellular device bill must be included in the payment supporting documentation.
VI. Home Internet Service: Taxable – If there is a valid business need, an employee may be provided with home internet service or may be given a reimbursement or an allowance for all or a portion of the cost of their personal home internet service. IRS regulations require that any employer-paid cost or allowance for home internet service is taxable unless thorough and accurate records are kept of all business use vs. personal use. Due to the administrative burden of keeping and auditing these records, state-provided home internet services or reimbursements or allowances paid to an employee for home internet service will be treated as taxable to the employee and be processed through the State Payroll System, except for the situation described in VII. below.
The standard maximum allowance or reimbursement amount is up to $23 per pay period ($50 a month).
Agencies may set a higher or lower allowance or reimbursement amount for an employee or group of employees depending on their business needs, costs, and other applicable factors. Any allowance amount that is greater than the above amount must be approved by the GovOps Division of Finance Director. The allowance or reimbursement should be calculated on the services needed for business purposes, excluding any extra services for personal reasons, and must never be higher than the actual cost of the service.
The value of state-provided internet services must be reported to the GovOps Division of Finance Payroll team, so its value can be added to the employee’s taxable gross income. Employee allowances shall be processed through the State Payroll System as taxable income. The employee must keep a copy of their home internet bills for at least one year for audit purposes. Employee reimbursements of home internet service bills shall be paid on a GAX payment voucher in FINET and reported to the GovOps Division of Finance Payroll team to be added to the employee’s taxable gross income. A copy of the home internet bill must be included in the payment supporting documentation.
VII. Home Internet Service: Nontaxable Exception – State-provided home internet service which is dedicated exclusively for business use and never used for personal use is not taxable to the employee. For example, if an employee works at home full-time and the State provides a dedicated internet service separate from the employee’s personal home internet service, the value of the service would not be taxable. The employee must sign an agreement stating that they have a separate personal home internet service and that the state-provided home internet service is never used for personal reasons. The employee must agree that the State may review or audit the use of the state-provided internet service to verify that it is not being used for personal reasons. Executive Director or designee approval is required.
VIII. Occasional Reimbursement of Actual Expenses – Employees may be reimbursed for approved state expenses incurred by the employee on their personal cellular device or home internet service. To be eligible for reimbursement, the employee must incur out-of-pocket costs. The reimbursement must be approved by their supervisor and supported by the original bill or other valid receipt substantiating the costs. These reimbursements can be processed through FINET or the State Payroll System as a nontaxable amount.
IX. Security and Acceptable Use of State-Provided Information Technology Resources – Employees who receive a state-provided cellular device or use a personal cellular device for business are required to adhere to applicable security policies or rules issued by their own agency and the GovOps Division of Technology Services (DTS POLICY 5000-0003).
When using state-provided cellular devices for home internet access, employees will comply with Administrative Rule R895-7, Acceptable Use of Information Technology Resources. This rule outlines the
allowable personal use of state provided resources and makes it clear that the employee should not have any expectation of privacy regarding any data or communication stored or made with a state-provided cellular device or home internet service.
X. Privacy of Data on Personal Equipment – When an employee receives an allowance or reimbursement for business use of their personal cellular device or home internet service, their personal information is considered private. However, because personal data is commingled with business data, the personal data may be viewed by a state officer or court in response to GRAMA requests or court action related to the business data.