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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Kelly Erb is a tax attorney and tax writer.


  1. every time apple gives something to its employees, it takes care off all the tax liability with a special non-taxable info line item on the paycheck. This isn’t the first time.

  2. Ryan –
    If you’re saying that in the past, Apple has noted a “de minimis” gift on a paycheck for purposes of record-keeping, that’s cool.
    But Apple cannot simply wipe away the taxable nature of this gift (and it is taxable) with a line item on a paycheck.

  3. I know this is old news, but it was linked in the email and caught my eye… I guess I just always try to think creatively to avoid extra paperwork when it *shouldn’t* be necessary if “perceived” goodwill is involved. thinking about this, I looked up de minimis gift since I had never come across that before, and see generally what it means an how the iphone would not apply… my (hypothetical) question is this:

    if apple, instead of “giving” each employee an iphone, decided to “supply” each employee with an iphone as required equipment, could they not take the burden off of the employee as well as their matching fica amount and write it off instead as company-owned equipment provided to the employees to “test” and use as they see fit (as they naturally would with any phone “in-the-wild”)? I assume at some point apple would have to reclaim possession of the phones or publicly write them off as old equipment and sell them to them for $1 if they wished to continue using them.

    there might be a few extra hoops to jump through for apple (company memos, press releases, etc), but the time to do that versus the additional hr time to organize things and pay fica taxes would have made this a viable alternative, no? am I thinking it’s too easy to get around the issue that comes from this? it seems a worthwhile investment in time to investigate when considering the taxation of those employees as well as the fica matching on 18k x $600 worth of taxes. again, I realize this is old news, but I’m sure it’ll come up again as other companies do similar things…

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