The question turns on whether the phones are “company-provided.” Because the scenario you describe involves reimbursement to employees for the cost of the phones that belong to the employees and used in business, rather than being the company’s phones, you still should handle it as an expense reimbursement. Employees (who use their phones for business at least part of the time—see IRB 2011-38) should submit their phone expenses under accountable plan rules for reimbursement. The reimbursement is not reportable as income to them.
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