Final answer:
Employee discounts, or bargain purchases, are treated as imputed income for tax purposes. Imputed income refers to the value of an employee benefit received through a discount, which is considered taxable income. The IRS has specific rules to determine when employee discounts are subject to income tax.
Step-by-step explanation:
Employee discounts, also known as bargain purchases, are treated as imputed income for tax purposes. Imputed income refers to the value of an employee benefit that is not provided directly as cash but is instead provided in the form of a discount or other perk. In the case of employee discounts, the imputed income is the difference between the fair market value of the product or service and the price paid by the employee.
For example, let's say an employee receives a 20% discount on a product that usually sells for $100. The imputed income would be $20 (the difference between the full price and the employee's discounted price), and this amount may be subject to income tax.
It's important to note that not all employee discounts are considered imputed income. The IRS has specific rules and requirements that determine whether an employee discount should be treated as taxable income. Tax professionals and employers can provide more information on these rules and how they apply to specific situations.