The president’s newly-released budget proposal for fiscal year 2011 could have a direct impact on your accounts payable department.
Each year the president releases a document outlining policy initiatives that his office would like to see included in the finalized budget. This year, the “General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals,” also called the president’s Green Book, includes two proposals that AP departments should be aware of.
The first is a proposal to eliminate the reporting obligation for using a company-provided cell phone. If this were to become law, then the cost of using a company cell phone would no longer be considered income to the employee. Existing rules requiring strict documentation of personal use versus business use would be repealed.
The original law, passed in 1989, states that use of an employer-provided cell phone for personal calls is taxable income. Employees are supposed to keep detailed records of their business calls, including the length of the call and a clear description of its business purpose. If there is no documentation, then 100 percent of the cost of the cell phone is treated as income.
Because of the ubiquitous nature of cell phones and other mobile communications devices today, keeping track of which calls, e-mails, and text messages are business-related is becoming very difficult for employees.
In June 2009, the IRS decided to address the modern-world implications of the law by simplifying it. They issued several proposals for easing the burden, including potentially enforcing a blanket ruling that 25 percent of all employer-provided cell phone expenses be treated as taxable income.
When the IRS asked for public comment on the proposals, the response was overwhelmingly negative. The outcry prompted the IRS to release a statement asking Congress to repeal the existing cell phone tax. After all, in many cases the process of accounting for employee use is more costly than paying for it.
While the measure is currently part of the president’s Green Book, that doesn’t mean that it is part of any existing legislation. It simply means the president thinks this is a goal that Congress should adopt.
The other AP-related proposal described in the Green Book is streamlining rules for classifying an individual as an employee or an independent contractor. Specifically, the president wants the IRS to release new guidelines for classifying workers under common law standards. This would allow employers to be confident that once an employee is properly classified, they would be less likely to have the classification challenged again.
In addition, another Green Book initiative would allow contractors to request that your organization perform voluntary withholding on their payments. Contractors could require you to withhold 15 percent, 25 percent, 30 percent, or 35 percent from all payments $600 or more.
Many of these initiatives would make AP’s job a lot easier, specifically streamlining rules for determining worker classification and eliminating the need to document personal use of a business cell phone. However, allowing contractors to require employers to perform withholding could cause some problems.
If voluntary withholding becomes law, organizations should develop policies specifying how often contractors can change their withholding rates. For example they could be locked into a withholding rate for a quarter. Allowing contractors to change their rate whenever they like would be a nightmare to stay on top of.
Each of the provisions mentioned here is part of the president’s Green Book, not of any active legislation. Still, if these policies do become law, they could apply as soon as tax year 2010. If any of these initiatives are passed, rest assured that we will let you know about it.