The IRS recently issued guidelines for determine whether an employer-paid cell phone should be considered taxable compensation or a non-taxable benefit.
While the IRS didn’t advise on the nanny industry specifically, they did provide a set of criteria for determination. The employer must have a “substantial reason” for the employee to have a cell phone. The IRS has a fairly lengthy definition of “substantial reason,” but there are two key parts of the definition that, in our opinion, are relevant to the in-home childcare industry: 1) the employer’s need to contact the employee at all times for work-related emergencies, 2) the employer’s requirement that the employee be available to communicate at times when the employee is away from the office (home).
Given the nature of childcare, we believe it is easy to argue that continuous communication is required in order to ensure the safety and wellness of the charges. Additionally, since most childcare jobs require mobility that takes the nanny and her charges away from the land-line phone in the employer’s home (i.e. errands, walks, school pick-up, etc.), a case can easily be made that the cell phone is perhaps the nanny’s most important work-related tool.
So, what does this mean? It means that employers can pay for their employee’s cell phone and cell phone plan without any taxes to either party. The next time you negotiate for a new job or a raise, talk to your employer about including your cell phone plan in your compensation package. Capitalizing on this and other tax breaks will put more money in your pocket and your employer’s pocket.
If you have any questions about this ruling and how it may impact your personal tax situation, we advise you to talk to an income tax professional.
Reprinted with permission from http://regardingnannies.com/.