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Employee Discounts

Can someone shed some light on the taxability of employee discounts offered.
When do we consider these benefits as taxable and what are the use case scenarios.


  • Check IRS publication 15B, which spells out the rules for fringe benefits. The rules are spelled out there. The general rule of thumb is that EVERYTHING of value is 100% taxable wages until/unless you can show that the exception exists AND the related rules are being followed. All exceptions have rules that must be followed.

  • Also, if anyone can afford the money, I would like to STRONGLY recommend The Payroll Source Book by the American Payroll Association. It is generally considered to be the payroll bible in the industry. It is strong on federal payroll law (both IRC and FLSA) and is very strong on federal handling of benefits. It is also the study guide for the CPP exam. At my last job, I had three person payroll department reporting to me, bought each of them a copy, and we had standing instructions to look it up in THE BOOK before bringing your problem to me for answers. We also trained maybe 3 hours a month using the book as a study guide. Not so strong on state and pretty much nothing at all on local. (Get one of the paid payroll library services for that - APA, BNA, CCH, RIA).

  • Thanks David
    When it comes to the business use case scenario's can you let us know when this can be given to an employee and also if you can share some examples, that would help me for a better understanding.

  • I am giving you a pointer to the publication. Employee discounts are on page 11. Are their exceptions? Of course, but since I do not know the entirety of your facts, so at the end of the day, YOU really need to read this publication YOURSELF.

    If you can give me very specific facts, then I can try to give you a very specific answer. But at the end of the day, this is something you have to learn yourself.

  • Hi David:
    I have gone through the IRS Pub 15B, and on the employee discounts section it says when these discounts are included or excluded in the employee's income based on certain rules and criteria.
    But if i have to quote real time examples, can you share few.
    Basically we are planning to design something that fits in the requirement of actual business use case scenarios, is it something that you can shed light on.

  • For me, employee discounts was an answer on the CPP exam, not something that made sense for any of my employers. But to pick a hard example which I have not actually tried to use, Bob works for and lives in an apartment complex. If we can pass IRS's very restrictive rules on "rent is free because we are forcing Bob to live there", then that is the way to go. If not then discounting Bob's rent to the legal maximum is the way to go. But notice how if Bob is not living and working in an apartment complex, EVERYTHING changes. My last two jobs were for a software company who sold very specific software to financial institutions and for a manufacturing company who made oil/gas pipeline equipment. Not a lot of room for discounts. Or free rent. These types of situations are always VERY specific to the facts in questions. Which I do not know in your case.

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