Reimbursing an employee for their cost of telecommunication tools and usage plans
January 26, 2020
IRD in December 2019 has provided a guidance statement for when an employer reimburses an employee for the employee’s cost of their telephone, tablet or computer (collectively referred to as telecommunications tools). When there is a reimbursement made the payment is non-taxable for the employee (exempt income) under one of four categories identified:
A. When the telecommunications tool is reasonably determined to be mainly used by the employee for business purposes, then the employer can pay to the employee 75% of their total bill (and depreciation of the telecommunications tool) as non-taxable exempt income.
B. When the telecommunications tool is mainly used by the employee for private purposes, but is required to use it for business purposes, then the employer can pay to the employee 25% of their total bill (and depreciation of the telecommunications tool) as non-taxable exempt income.
C. When the telecommunications tool has no business use, then there is no portion of non-taxable exempt income.
D. There is a di minimis amount that does not require any further verification. If the payment is no more than $5/week ($265/year), it is exempt income.
The guidance statement only applies to reimbursements to employees. Other circumstances are not covered.
If the employer pays the plan directly or owns the tool it is available to deduct the full amount of the plan and usage as long as the tool is mainly used for business and the total cost is less than $5000 per year.
If actual use can be shown to be more than allowed in A or B above, then the higher portion can be reimbursed. This requires evidence to document.
If the payer is not an employee (i.e. a contractor) the guidance statement does not apply. The contractor can claim the deduction for their full business usage.
There are many different circumstances that apply to the business use of telecommunications tools, so if you’re not certain, please contact us.
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