Jan 09, 2016 Mobile Paying full price for your new phone is a good idea. In this edition of Ask Maggie, CNET's Marguerite Reardon explains the ins and outs of a world without subsidized phones.
Creating a policy for employee mobile phone reimbursement can be tricky. Unlike the rules surrounding other business expenses, IRS regulations governing employee cell phone use are ambiguous and in a state of flux. To date, no single model of cell phone reimbursement has become an industry norm. Finance departments need to carefully consider the model through which they reimburse employees for personal technology.
In this article we present a tactical approach to the challenge of creating a cell phone policy. Ultimately, we recommend that you use your employee expense workflow to reimburse each employee either $50 or $75 a month. This policy is IRS-compliant, scalable, and convenient for employees and Finance admins. Here’s why.
Please note: Abacus does not provide accounting advice. Speak to an accountant to determine the particular needs of your business.
Three decisions
The tax regulations of cell phone reimbursement boil down to three questions the company must answer:
- Is reimbursement right for your business, or do you want to provide company phones?
- If you decide to reimburse, should you do so under an accountable or non-accountable plan?
- How much should you reimburse?
Let’s take them in order.
BYOD or COPE?
The first question is whether to reimburse employees for part of their monthly wireless bill or to implement a corporate cell phone program. Eighty percent of enterprises provide mobile devices to employees, which is a policy known as “corporate-owned, personally enabled” technology, or COPE.
This approach is attractive to companies with particular concerns over data security and compliance. But to obtain this added control, companies have to manage big mobile contracts involving dozens, sometimes hundreds of devices. The cost is almost always higher than a reimbursement policy would be. Employees generally don’t like carrying two devices, and they always prefer using their own.
The expense and hassle of providing corporate-owned cell phones is what has led to the rise of reimbursement plans, colloquially known as “bring your own device.” BYOD is a more scalable, affordable, employee-oriented policy than COPE. The security trade-off is small for most companies: you probably don’t need to listen in on employee conversations and track their physical movements. You just need them to be able to speak to clients and work remotely.
Since most companies only need to meet that limited use case, reimbursing employees for personal devices is simpler and cheaper than providing phones. But COPE options do exist.
Accountable or non-accountable?
If you decide to reimburse employees for part of their monthly cell phone bills, the next question is whether to do it under an accountable or non-accountable plan.
Choosing an accountable plan means that you, the employer, are willing to be responsible for collecting and reporting extra documentation to the IRS in order to spare your employee from having to report their reimbursement as taxable income. In order to be accountable, your cell phone reimbursement policy has to satisfy three requirements:
- The expense has to prove a business connection. This requirement is met by showing that the use of a cell phone is ordinary and necessary, and that it took place as part of the employee performing their job.
- It has to be accounted to the employer in a timely manner.
- The employee must return any excess reimbursement.The best way to handle this is simply to not reimburse them in excess of what they’re owed. We’ll cover this in the next section.
Any plan that fails on one of these points is non-accountable and requires your employee to either write you a check for the excess amount or report their reimbursement as income. Luckily, you can meet all these requirements with a system you already use every day: your employee expense workflow.
Reimbursing cell phone use through your expense management system ensures that each reimbursement will be accompanied, in a timely manner, by the date, documentation, and business purpose of the expense. After all, that’s already the standard for all your deductible expenses; it’s the same reason why record-keeping and reporting will be easy. Employees already know how the submission process works, and they’ll definitely be happy to not pay unnecessary taxes.
Having employees submit their cell phone expenses as T&E, as opposed to handling reimbursement via payroll or another Accounts Payable process, allows you to pay your people under an accountable plan without changing any of your workflows.
What level of reimbursement?
Another way to avoid excess reimbursement is to require the employee submit the cell phone bill as part of the expense, the same way you would require a receipt for a client meal expense. That way, you’ll be able to see the total bill amount and avoid reimbursing more than that.
Thanks to a few rule changes over the past few years, the IRS now requires far less documentation to support the dollar amount of mobile reimbursements. Back when cell phones were treated as listed property, companies had to be prepared to justify the level of reimbursement based on the percentage of business versus personal usage the phone had each month. That meant call logs with highlighted line-items and inconsistent reimbursements month-to-month.
Now that the reporting requirements have relaxed, you mostly need to ensure that you reimburse reasonably and not in excess. Simple.
Solve the reasonable part by being consistent. With standard, company-wide reimbursement levels, it’s easy to defend any given reimbursement, should the need arise. That’s probably why so many businesses use this approach.
Implement a two-tier system that applies to everyone in the company who needs cell phone reimbursement. Pay a set dollar amount to lighter cell phone users and a higher dollar amount to more frequent users.
You’ll decide on your own reimbursement levels, but we suggest $50 for low business use and $75 for high business use. The average monthly cell phone bill is $73, according to data from 2014, which means that high-use cellular bills probably exceed that amount comfortably. Also, $75 is an informal de minimis threshold for expenses, since below that the IRS doesn’t require receipts to accompany deductible expense claims.
Regardless of where you set your dollar amounts, it’s critical that any reimbursement be less than the employee’s total bill. Even if an employee uses their personal cell phone entirely for business, but pays only $73 a month, you’re still not allowed to reimburse them $75. That’s $2 in excess, which constitutes income, which means they either have to return that money to the business or report their entire reimbursement as income. Reimburse them at a lower tier and avoid this problem.
Our recommendation
Every company will have different mobile technology needs, but our suggestion for an optimally scalable mobile policy is to:
- Reimburse personal cell phone use,
- Through your expense management workflow,
- In two consistent tiers across the company, always less than the total amount of the bill.
Make sure you have a policy
Some companies don’t have any cell phone policy at all, and thus do not offer any reimbursement or COPE phones. If you choose to go this route, be sure that your employees in no way feel that they need to use phones to do their jobs. Otherwise, you could be held liable.
In 2014, an appellate court in California ruled against an employer who didn’t reimburse employees for personal cell phone use. The company’s logic was that since employees pay for personal cell phone plans regardless of their work, businesses don’t need to subsidize what is essentially a personal choice. The lower court actually agreed with the company, but the higher court didn’t, and set a precedent of ambiguous legal impact around the requirements of BYOD employers.
Best practice is to avoid this problem entirely. Times have changed, and even if you’ve never had a BYOD or COPE policy before, now is the time to create one.
Navigating an immature policy
The goal of a corporate cell phone policy is to provide your workforce the mobile technology they need in a way that is compliant, consistent, and fair to employees. It sounds simple, but a quick look at how businesses handle their mobile policies reveals a confusing array of approaches.
The reason is that even ten years after the debut of the iPhone, the IRS still hasn’t quite figured out how to streamline the process of reporting and deducting mobile technology costs.
To solve this problem, the IRS should consider creating a federal rate for cell phone reimbursements like they’ve done for vehicle mileage, per diems, and other common expenses. Mobile technology is taking over the world, and as businesses find innovative ways to leverage wearable technology and the Internet of Things, the line between personal and enterprise technology will continue to blur. A Safe Harbor rate would lighten the reporting burden of finance teams and the IRS itself.
But you don’t need to wait to craft your own consistent, compliant cell phone reimbursement policy. Have employees submit reimbursements as T&E — like 35% of Abacus customers do — and rest easy knowing your company’s mobile strategy isn’t being held up by tax concerns.
Abacus does not provide accounting advice. Speak to an accountant to determine the particular needs of your business.
Next time you're in the market for a new smartphone — whether it's the iPhone XS, the Galaxy S10 or one of the best cheap phones — you may find yourself needing to pick out a new cell phone plan, too. And getting just the right plan can be tricky.
Beyond just dollars and cents, you need to consider which phones are supported by which wireless carriers and what coverage and data speeds are like in the area where you’ll use your phone the most. Throw in carriers’ near-continual plan changes — including multiple tiers of unlimited plans — and it’s a recipe for confusion.
To make the decision easier, we’ve gone through each carriers’ plans to figure out which one is the best for your particular needs. Though there are less expensive options, T-Mobile's renamed Magenta unlimited data plan is the best family plan, offering better value than what you'll find at AT&T and Verizon. T-Mobile's $70 plan is also the best unlimited data plan for individuals, though you can get a bare-bones unlimited data plan from the carrier for $10 less.
MORE: Who Is the Top All-Around Carrier in the U.S.?
If saving money without compromising too much on data is the most important thing to you, Republic Wireless offers a decent amount of data for less than $30 a month. Otherwise, Verizon offers the most compelling individual cellphone plan, costing $55 a month for 5GB. Prepaid customers should take advantage of AT&T's limited time offer that doubles the size of its $40-a-month data plan to 16GB, but otherwise Metro by T-Mobile offers the best prepaid plans for both individuals and families thanks to a strong network and appealing perks.
Note: T-Mobile and Sprint have announced plans to merge. While major changes are unlikely until the merger goes through (and that's still awaiting regulatory approval), it could mean less aggressive pricing promotions from the combined company. T-Mobile CEO John Legere has promised the same or better rates will remain in place for three years after the merger goes through.
These are the best cellular plans available right now.
Best Cellphone Plans: Our Top Picks
Best Family Plan
- Monthly Price
- $160
- Additional Fees
- None
- Total Cost
- $160 (assumes 4 lines for Family Plan)
- Data
- Unlimited
Even as carriers offer multiple tiers of unlimited data plans, the renamed T-Mobile Magenta plan is still the best choice for families. It gives a family of four unlimited data for $160 a month. We wish T-Mobile still let you stream HD video as part of its Magenta plan, but for most users, 480p video on a smartphone-sized screen will be good enough. (Families can pay an extra $10 per month per line for Magenta Plus if they really want HD streaming.) T-Mobile's network delivers comparable performance to Verizon, which charges more for its best unlimited family plan, though Verizon also lets you mix and match different unlimited options for each line of your family plan.
Best Unlimited Individual Plan
- Monthly Price
- $70
- Additional Fees
- None
- Total Cost
- $70
- Data
- Unlimited
All four major carriers now offer different tiers of unlimited data plans. We think T-Mobile's $70 option provides the best mix of value and performance. Sprint's basic unlimited plan is cheaper than T-Mobile Magenta, but its network isn't as fast. The entry-level plans from Verizon And AT&T both carry too many restrictions, relative to T-Mobile's $70 plan. (And if you don't mind restrictions, T-Mobile Essentials is cheaper still at $60 a month.) T-Mobile Magenta features a good price on a strong network, and if you want to upgrade from 480p video streaming to HD, it's just $15 more per month (the same price as Verizon's unlimited plan with HD streaming.)
Best Individual Plan
- Monthly Price
- $40
- Additional Fees
- $20
- Total Cost
- $55 (w/autopay)
- Data
- 5GB
Verizon has pared back its tiered data plans to just one option for individuals, but it's a really good one. Verizon's 5GB for $55-a-month plan is tough to beat if you don't see yourself needing an unlimited amount of data. (And the truth is, most individual users don't.) Verizon's plan gives you a healthy chunk of data at a reasonable rate, and you can rollover unused data to the next month. Turn on Verizon's Safety Mode, and you'll avoid overage fees if you do go over your allotment.
Best Prepaid Individual Plan
- Monthly Price
- $50
- Additional Fees
- $10 discount for autopay
- Total Cost
- $40
- Data
- 16GB
Getting the best prepaid plan currently available means acting quickly. AT&T is doubling the size of its $50-a-month prepaid plan, giving you 16GB of LTE data instead of the usual 8GB. Sign up for autopay, and you can knock $10 off your bill. That means you're paying the same $40 for 16GB of data at AT&T that Metro by T-Mobile charges for 10GB of data. AT&T is offering this deal through July 11. Should it vanish, Metro's 10GB is a good alternative, especially since it includes taxes and fees in the price.
Best Plan Under $30
- Monthly Price
- $15
- Additional Fees
- $5 per 1GB of LTE data
- Total Cost
- $25
- Data
- 2GB
If you're looking to really save money on your monthly bill, nearly a dozen low-cost carriers are competing for your business by letting you mix-and-match your talk, text and data limits. Republic Wireless offers the best mix while keeping your plan under $30. Every plan features unlimited talk and text for $15 a month; just tack on $5 for each gigabyte of LTE data you use, meaning you can get 2GB along with talk and text for a grand total of $25 every month.
Best Unlimited Prepaid Plan
- Monthly Price
- $50
- Additional Fees
- None
- Total Cost
- $50
- Data
- Unlimited
Several prepaid carriers offer monthly plans with unlimited 4G LTE data, but Metro by T-Mobile remains the best, thanks to its superior network performance and perks. Metro gives you unlimited data for $50 a month, with 5GB of LTE hotspot data and access to Google One cloud storage. Upgrade to the $60 plan, and you get 15GB of hotspot data plus an Amazon Prime membership on top of Google One. That tops Boost's similarly priced unlimited plans, though Boost does offer more hotspot data, and you can get HD video streaming with its $60 plan.
Best Prepaid Family Plan
- Monthly Price
- $50
- Additional Fees
- $30 per line
- Total Cost
- $140 (assumes four lines)
- Data
- Unlimited
Metro and Boost charge the same $30 to add extra lines to one of their data plans. That means a family of four would pay the same $140 a month for unlimited data on every line. We give the nod to Metro, because the network of its parent company T-Mobile performs better on our test than that of Boost parent Sprint. We also like its included Google One storage, though Boost offers more hotspot data with its plan.
Best International Plan
- Monthly Price
- $20
- Additional Fees
- $10 per 1GB of data
- Total Cost
- $30
- Data
- 1GB
Sign up for Google Fi (the wireless service from Google previously known as Project Fi), and you need never worry about running out of data when you're overseas. The service costs $20 a month for talk and text, plus $10 for each gigabyte of data you use, with Google capping monthly bills at $80 for single lines even if you need to use more data. Google Fi lets you draw from your regular high-speed data in more than 170 countries with no roaming charges. You just pay the same $10-per-gigabyte rate as before. (You're also credited on your next bill for any data you didn't use.) Unlimited international texting comes with every plan and calls cost just 20 cents a minute. Google Fi used to be limited to a handful of select Android devices, but now you can use it with just about any phone, including iPhones. (Fi-certified devices still enjoy some advantages, though, like the ability to switch seamlessly between networks.)
If you'd prefer a different carrier, T-Mobile remains a strong alternative, letting T-Mobile One subscribers use data in more than 210 countries, though at 2G speeds. You can talk and text for free in Canada and Mexico, though T-Mobile limits you to 5GB of LTE data in those countries. (Be aware that the carrier's lower cost T-Mobile Essentials unlimited plan doesn't include these international perks.)
If you'd prefer a different carrier, T-Mobile remains a strong alternative, letting T-Mobile One subscribers use data in more than 210 countries, though at 2G speeds. You can talk and text for free in Canada and Mexico, though T-Mobile limits you to 5GB of LTE data in those countries. (Be aware that the carrier's lower cost T-Mobile Essentials unlimited plan doesn't include these international perks.)
MORE: Best International Phone Plans: What Travelers Need to Know
In evaluating plans, we looked at the four major U.S. carriers — AT&T, Sprint, T-Mobile and Verizon — and what they offer. We also looked at five discount carriers: Boost Mobile, Cricket, MetroPCS, Straight Talk and Virgin, and to help you stretch your dollar even further, we rounded up plans from several smaller discount carriers. In addition to price, we considered network coverage and performance, including results from our own 4G network testing in eight cities. In some cases, total savings on one carrier’s plan outweighed the performance edge another carrier might enjoy; other times, network performance was a deciding factor in our choice.
What about 5G?
Wireless carriers will launch faster 5G networks in some cities this year, but now that the Galaxy S10 5G and LG V50 ThinQ are available, we're starting to get a sense of what carriers are going to charge for the faster service.
Verizon, which has launched its 5G service in two cities, is charging customers $10 per month for unlimited 5G data on top of the its regular unlimited LTE data plans (though it's currently waiving that fee as part of a limited time promotion); you're restricted to either the $85 Beyond Unlimited or $95 Above Unlimited plans at Verizon. Sprint isn't charging extra for 5G coverage, but you do have to get its most expensive unlimited plan, Unlimited Premium, for $80 a month.
T-Mobile doesn't yet offer any 5G phones. However, the company has said that its 5G plans will cost the same as its current unlimited data offerings. AT&T has yet to talk about its 5G pricing.
MORE: The Truth About 5G: What's Coming This Year
Should you switch?
If these are the best plans, does that mean you should drop your current carrier for one of the above plans that best covers your needs? (That assumes, of course, that the carrier we recommend provides ample coverage for your area.) Yes, but only if you can switch without consequences.
If you can't wait until your deal is up with your current carrier, the major carriers are all willing to pick up some of the cost to get you to switch. Verizon, Sprint, and T-Mobile all offer incentives for each phone you switch over to pay off your phone purchases and early termination fees. These promotions can vary over time, so we'd suggest keeping an eye on the best carrier deals when you're mulling a switch, as you could find extra ways to save money.
MORE: Carrier Customer Service Showdown: Who's on Top?
As of this writing, Sprint offers an incentive in the form of a low-cost unlimited for you to leave your current carrier behind. When you bring you current number over to Sprint, you can qualify for an Unlimited Kickstart Plan which gives you unlimited talk, text and data for $25 per line. In exchange for that low cost, you'll give up some of the perks that Sprint offers for its higher priced unlimited plans. Video streaming is restricted to 480p and there are speed limits on music and game streaming, too. You also don't get Hulu bundled with your service as you do on Sprint's other plans. However, Sprint does include free text and 2G data in more than 200 countries with Unlimited Kickstart.
T-Mobile just launched a promotion where it will honor some discounts offered by rival carriers to convince people to switch to its network. You'll need to bring in a bill to T-Mobile showing an eligible corporate, affiliate, military or senior discount, and T-Mobile will try to match that discount in $5 increments up to $15 for one line and $30 for two or more lines.