Final answer:
The 10% discount on products is the nontaxable fringe benefit provided by the employer, as it does not exceed the business's gross profit margin of 20%. Whereas vacation pay, sick pay, and bonuses are all taxable income for the employee.
Step-by-step explanation:
The question at hand is asking which fringe benefit provided by an employer is not taxable to the employee. Receiving a 10% discount on products sold by the business, where the gross profit percentage is 20%, is considered a nontaxable fringe benefit so long as the discount does not exceed the profit margin. On the other hand, vacation pay, sick pay, and a bonus are all considered taxable fringe benefits and are typically included in an employee's gross income, subject to all payroll taxes.
An important point to remember with payroll taxes is that while they are officially split between employer and employee, the employee may effectively bear the total cost indirectly through lower wages, as some economists suggest. A self-employed individual would need to pay both the employer and employee parts of the payroll taxes, which can be particularly significant when managing one's own business.