Final Answer:
Employee discounts on services greater than what percent must be reported to the IRS as pay is 20%.The correct option is (C) 20%.
Step-by-step explanation:
Employee discounts on services that exceed 20% must be reported to the IRS as pay. The Internal Revenue Service (IRS) has specific rules regarding the taxation of employee discounts.
According to IRS regulations, if the discount on services provided to employees is more than 20% of the price offered to customers, the excess amount is considered taxable income and must be reported on the employee's W-2 form.
The calculation involves comparing the discounted price offered to employees with the price available to the general public. If the discount exceeds 20% of the regular price, the excess amount is treated as additional income subject to taxation.
This rule is in place to prevent employers from providing substantial tax-free benefits to employees through overly generous discounts on services.
For example, if a service is regularly priced at $100, and an employee receives it for $70, the discount is 30%, which exceeds the 20% threshold. In this case, the additional $10 (30% - 20% = 10%) would be considered taxable income and should be reported to the IRS.
The correct option is (C) 20%.