We want to offer all staff who work 32 hours a week or more discounts to church retreats and functions. Does the “employee discounts” exclusion outlined in IRS Publication 15-B apply or must discounts be treated as taxable income to the employees? The publication says: “This exclusion applies to a price reduction you give your employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services.”
I would also like to point out thatPublication 15-B says, “You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to” certain limits—including “a discount on services, 20% of the price you charge nonemployee customers for the service.”
Caveats - Discount - Executive - Leadership - Wages
There are some caveats to this discount, and this one may apply to your executive leadership: “You can’t exclude from the wages of a highly compensated employee any part of the value of a discount that isn't available on the same terms to” other employees.
If you are giving a discount of 20 percent or less to any employee, it is nontaxable. If the discount is more than 20 percent, then the term “substantial services,” as you quoted above, will need clarification from a tax expert.
Insights - CPA - Mike - Batts - Expert
For some additional insights, I reached out to nonprofit CPA Mike Batts, a nationally noted expert, an editorial advisor of Church Law & Tax, and author of Church Finance: The Church Leader’s Guide to Financial Operations. He concludes his remarks by dealing specifically with the terms “line of business” and “substantial services,” which relates specifically to whether an employee needs to work in the department conducting the discounted activity in order to be eligible for the discount.
Here, then, is what Mike had to say:
Fringe - Benefit - Rule - Reader
The nontaxable fringe benefit rule that your reader...
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