Q: “When it comes to reimbursing employees or providing a monthly stipend for the use of their personal cellphones for ministry purposes, is this a non-taxable fringe benefit?”
A: Yes, provided that your reimbursement is reasonably calculated to actually reimburse the employees for the actual costs of maintaining the phone.
Creating a policy for employee mobile phone reimbursement can be tricky. Unlike the rules surrounding other ministry expenses, IRS regulations governing employee cell phone use are ambiguous and in a state of flux. To date, no single model of cell phone reimbursement has become an industry norm. Churches need to carefully consider the model through which they reimburse employees for personal technology.
The tax regulations of cell phone reimbursement boil down to three questions the church must answer:
- Is cell phone reimbursement right for the church, or do you want to provide church phones?
- If you decide to reimburse, should you do so under an accountable or non-accountable plan?
- How much should you reimburse?
- Who gets the reimbursement
The first question is whether to reimburse employees for part of their monthly wireless bill or to implement a church cell phone program.
The expense and hassle of providing church-owned cell phones are what has led to the rise of reimbursement plans. The security trade-off is small for most churches: 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 church members and work remotely.
Since most churches only need to meet that limited use case, reimbursing employees for personal devices is simpler and cheaper than providing phones.
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 nonaccountable plan.
Choosing an accountable plan means that you, the church, are willing to be responsible for collecting and reporting extra documentation to the IRS in order to spare your employees from having to report their reimbursement as taxable income. In order to be accountable, your cell phone reimbursement policy has to satisfy three requirements:
- The expense has to prove a ministry 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.
Any plan that fails on one of these points is non-accountable and requires your employee to either write you a check for the excess amount or report their reimbursement as income.
Reimbursing cell phone use through your expense management system ensures that each reimbursement will be accompanied, in a timely manner, by the date, documentation, and business purpose of the expense. After all, that’s already the standard for all your deductible expenses; it’s the same reason why record-keeping and reporting will be easy. Employees already know how the submission process works, and they’ll definitely be happy to not pay unnecessary taxes.
Every church will have different mobile technology needs, but our suggestion for an optimally scalable mobile policy is to:
- Reimburse personal cell phone use,
- Through an accountable expense plan,
- In two consistent tiers across the church, always less than the total amount of the bill.
Implement a two-tier system that applies to everyone in the church who needs cell phone reimbursement. Pay a set dollar amount to lighter cell phone users and a higher dollar amount to more frequent users.
You’ll decide on your own reimbursement levels, but we suggest $30 to $50 for low business use and $60 to $75 for high businesses use. The average monthly cell phone bill is $73, which means that high-use cellular bills could exceed that amount comfortably. Also, $75 is an informal de minimis threshold for expenses, since below that the IRS doesn’t require receipts to accompany deductible expense claims.
The goal of a church cell phone policy is to provide your workforce the mobile technology they need in a way that is compliant, consistent, and fair to employees. It sounds simple, but a quick look at how churches handle their mobile policies reveals a confusing array of approaches.
If your church does not have a cell phone policy. Click here to order your policy today.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (763) 425-8778
Fax: (888) 876-5101