Many churches and ministries question whether their current reimbursement policies are sufficient for employees who use cell phones for ministry business. The federal taxing authorities offer guidance for providing and reimbursing employees for business-related cell phone usage.
Generally, cell phone usage in ministry settings falls into two categories:
In a 2019 publication (IRS Publication 15-B), the IRS designated an employer-provided cell phone as a working condition fringe benefit. When churches or other ministries provide their employees with cell phones for the convenience of the employer or its customers/congregants, the value of the cell phone typically will not be included in the employee’s taxable income. In a similar manner, any personal use would likely be considered a de minimis fringe benefit that also is not taxable in employee wages.
IRS Publication 15-B provides the following examples of noncompensatory business reasons:
If an employer provides cell phones to reward an employee, the IRS generally considers such arrangements taxable.
Many times, a ministry requires employees to use their personal cell phones to take calls from the church or others within their ministries. In these cases, the church may reimburse the employee for all or a portion of the monthly expense of the cell phone.
It is unclear from IRS communications what documentation churches and ministries should maintain when reimbursing employees for the use of their cell phones. It may be prudent to follow the record-keeping best practices for “accountable plans” described in IRS Publication 535. This requires employees to submit copies of cell phone bills to their employers within 60 days of the incurred monthly expense.
It’s equally important for ministries to follow local laws. Some states have passed legislation requiring employers to reimburse employees for business-related use of personal cell phones.
You can find specific information about cell phone usage and IRS tax regulations in the following IRS communications: IRS Publication 15-B, and IRS Publication 535. For more information, please contact your MinistryWorks payroll specialist.