The IMUG meeting on 9/17/13 included an active discussion between the members about establishing a BYOD (Bring-your-own-device) program and the financial implications of that decision. There were many opinions discussed but the main driving force in the conversation hinged on the tax implications and how a BYOD program was going to be provided for by the organization financially. This month’s Digest Article is to help clear up some misconceptions on the financial aspects of a BYOD program, primarily what U.S. tax laws say and how they apply.
The tax laws that apply to BYOD programs fall under the “IRS Publication 463”. This publication describes reimbursements including what reimbursements are and what qualifies for tax deductions. Two types of reimbursements are detailed; accountable and nonaccountable. The IRS definitions for these are as follows:
- An accountable plan requires your employees to meet all of the following requirements. Each employee must:
- Have paid or incurred deductible expenses while performing services as your employee,
- Adequately account to you for these expenses within a reasonable period of time, and
- Return any excess reimbursement or allowance within a reasonable period of time.
- A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees’ pay in chapter 2. Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions.
Under these definitions, a cell phone plan, data plans, etc. fall under accountable expenses because it meets all three of the qualifiers.
So now that we know that a BYOD program qualifies as an accountable expense from the IRS and therefore qualifies for a tax deduction, are there any caveats to this rule? And in true IRS fashion, there is. The term is called extravagant. The IRS is not in the business of telling organizations what they need to be successful, but they do exist to try and keep organizations honest in their deductions.
Extravagant is something that the IRS deems as being beyond a necessary or ordinary expense. For instance, if an employee works at their desk with a desk phone already provided, then the expense of a cell phone plan would be deemed unnecessary and would therefore not qualify for a complete tax deduction. Also, if an employee was in need of a laptop to host presentations in the field, and was given a top of the line gaming laptop, that expense would be considered unordinary and qualify as extravagant. That doesn’t mean that the organization receives no deduction, it just means that all of the expense might not be deductible due to its extravagance.
This can get very confusing at times, and consulting an attorney or other legal representative is advised, but this information hopefully helps demystify the tax requirements of a BYOD program, what qualifies for a deduction, and leaves IT Asset Managers a little more prepared. BYOD programs are not going to go away. Mobile technology is becoming a staple asset for employees in both their professional and personal lives. Education on the subject matter and effective communication of what is best for the organization is key.