iPhone, uTax?

Working at Apple just got a little sweeter, it seems.

Apple has announced that it is giving free iPhones to all 18,000 of its employees, at a cost of over $10 million to the company. Each of the models is worth about $600.

Cool, right?

The new phones are set to be distributed to employees at the end of July. Eager employees will no doubt immediately start using their new toys and won’t give it another thought until… January 2008. That’s when they’ll receive their form W-2 which, if Apple does the right thing, will include the price of the iPhone as compensation.

Oh yeah, no matter how Steve Jobs announces the distribution of iPhone, it’s not a gift. It’s compensation. In almost every situation, a gift from employer to employee - no matter how well meaning - is not considered a gift. While the IRS is content to look away at gifts that are considered de minimis, an iPhone clearly doesn’t fall under that category. It’s the hottest tech item this summer - and it’s not cheap. The IRS will no doubt consider the “gifts” taxable to the employees - which means that the cost to Apple also just went up a little bit (Apple has to cough up the FICA match). While Apple has not yet announced its position on distributing iPhones to its independent contractors, I think that the tax considerations (not to mention the availability of the iPhone for paying customers) may help them along with that decision.

Just as Microsoft recently learned that there’s no such thing as a free lunch with the launch of Vista/Office promo, Apple will no doubt learn its lesson. A good rule of thumb: An apple (or fruit basket) to an employee? Free. An Apple iPhone? Not so much.

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