UC is suspending new policies governing taxation of university-owned cell phones and calling plans.

Under the policies that took effect systemwide in June, employees have been paying federal and state taxes on the full value of their phones and calling plans. In turn, the university has been providing cash allowances to offset the taxes.

Such reimbursement comes in a roundabout way: First, the university adds the dollar value of your phone and plan to your income; the added income is referred to as “imputed” income. The taxes on this amount are calculated and deducted from your pay. To offset these additional taxes, the university pays you a cash allowance. The net result is a minimal difference in your net pay, usually a few cents.

The only alternative was to have employees keep detailed records of their cell phone use, and pay taxes on their personal calls. But UC has never required this kind of recordkeeping, which can be time consuming and therefore expensive.

Congress expected to resolve issue

Nevertheless, the Internal Revenue Service wanted its money — based on a law that treats cell phones as fringe benefits, even though the phones have become commonplace.

Even while implementing the new policies, UC President Mark G. Yudof appealed to the IRS and won a temporary reprieve — based on the assumption that Congress will modify the tax treatment of employer-provided cell phones.

So, for now, UC will stop collecting cell phone taxes (and will stop adjusting employees’ paychecks accordingly). This is scheduled to take effect Oct. 1 for employees who are paid monthly and Oct. 4 for employees who are paid biweekly.

And employees who sign up for new cell phone accounts will no longer be required to fill out the Imputed Income Form as part of the account set-up process.

In the meantime, Congress is considering the Mobile Cell Phone Act of 2009 — designated HR690 in the House of Representatives and S144 in the Senate. If the legislation is not passed and signed into law, the IRS has agreed to consider an additional extension for the university.

More information on cell phones: cellphones.ucdavis.edu