You may not think so, but the Internal Revenue Service looks at your university-provided cell phone as a fringe benefit—insofar as you may use your university phone for incidental personal calls.

To comply with IRS rules, the university could ask you to keep detailed records of all your calls—which ones were for business, who you called, when and why; and which ones were personal. Accounting and Financial Services staff would monitor all these records.

And each employee would pay taxes based on the value of his or her personal calls.

UC has decided not to require such recordkeeping, calling it time-consuming and therefore expensive, especially considering the number of university cell phones. At UC Davis alone, the university provides some 3,500 phones—2,400 on the Davis campus and 1,100 at the UC Davis Health System.

In the absence of detailed recordkeeping, the IRS treats a cell phone package as a fringe benefit that adds to an employee’s income. And when your income goes up, your tax bill goes up.

Now, the government wants its money. And the IRS plans to get it from you—the employee, via monthly withholding. But not to worry, UC will give you a monthly allowance to pay the tax.

The UC Office of the President “has determined that the cost of reimbursing employees for the tax is lower than the ongoing effort that would be required to maintain IRS compliance,” according to a letter that went out last week to UC Davis deans and directors.

And, in a late development, after Dateline went to press, the Office of the President advised that the IRS tax rule applies not only to the value of your phone and calling plan, but to data service that may be associated with your plan.

Taxable wages

Under IRS rules, “detailed substantiation” is required every time you use your university-provided phone's voice or data service. Personal use is taxable if the employee does not reimburse the university for such use.

“If the employer does not maintain call records on a current basis, the value of all calls … is treated by the IRS as taxable wages reportable on the employee’s W-2," UC Davis officials said in their letter to deans and directors.

IRS audits at UCLA and UC San Diego turned up the bookkeeping problem, and UC is responding with a systemwide policy.

Here is how it will work, starting with your June earnings (June 24 biweekly check or July 1 monthly check):

Say the university pays a total of $50 a month for your cell phone and calling plan. This will be reflected on your check as imputed income.

This means your net pay will stay the same but your gross income will be $50 higher. And, because your gross is higher, you will be subject to higher withholding taxes for the IRS and the state Franchise Tax Board, and, if applicable, Social Security and Medicare.

However, the university will boost your pay to cover the extra taxes. For a cell phone and calling plan valued at $50 a month, the university will give you an extra $35.60 a month for federal and state withholding, and, for the purposes of this example, Social Security and Medicare.

‘Net zero impact’

The $35.60 is what auditors call a “grossed-up” figure, meaning it includes money to pay the withholding taxes on the extra $35.60 added to your gross.

On an annual basis, then, your gross will reflect an additional $600 in imputed income (money you will never see in your pocket, except in the form of your university-provided cell phone) and $427.20 in tax offset (which will go straight to withholding).

“The goal of this approach is to achieve a net zero impact on the employee’s paycheck, although there may be a slight difference between the amount of taxes withheld based on the imputed income and the cash allowance,” according to background information distributed to deans and directors.

In advance of the implementation date, UC Davis finance officials have advised business managers to ensure that their units are receiving the best possible cell phone rates and to confirm that all employees with university cell phones have legitimate business needs for such phones.

Information and Educational Technology-Communications Resources and Accounting and Financial Services have arranged six meetings from May 18 to 29 to go over the new policy with business managers.

A single cell phone provider—AT&T, Sprint-Nextel, T-Mobile or Verizon—will be represented at each meeting, to help business managers with rate shopping and plan comparisons.

Also, departments must complete an Imputed Income-Cash Allowance Form for every employee with a university cell phone. And each employee’s Payroll Personnel System record must be updated by June 17 (for the June 24 biweekly payroll) or June 23 (for the July 1 payroll).

FOR BUSINESS MANAGERS

IET-Communications Resources and Accounting and Financial Services announced six information sessions on the new cell phone policy. A single cell phone provider will be represented at each meeting, to help with rate shopping and plan comparisons.

May 18—1:30-3:30 p.m., MU II. (T-Mobile)

May 20—9-11 a.m., Cabernet Room, Silo. (AT&T)

May 21—9-11 a.m., MU II. (Verizon) (A scheduling change is the reason the times listed here for the May 21 meeting are different than those that appear in the printed edition of Dateline.)

May 22—9-11 a.m., MU II, Memorial Union. (AT&T)

May 28—1:30-3:30 p.m., Cabernet Room, Silo. (Sprint-Nextel)

May 29—9-11 a.m., Cabernet Room, Silo. (Sprint-Nextel)

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More information: cellphones.ucdavis.edu