8908 / Can an employee exclude from income the value of employee discounts offered by the employer?

The “qualified employee discount” exclusion applies to employee discounts provided by the employer on any property (other than real property or personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer for which the employee works. For the benefit to be excludable from income, the discount may not exceed:

(1)  the gross profit percentage of the price at which the property is being offered by the employer to customers in the case of property; or

(2)  20 percent of the price at which services are offered by the employer to customers, in the case of services.¹

For purposes of this provision, an insurance policy or a commission or similar fee charged by a brokerage house or an underwriter on sales of securities is considered a service.² The qualified employee discount will generally be available for employees of leased sections of department stores.³ The same nondiscrimination rules apply to qualified employee discounts as apply to no-additional-cost services (see Q 8905).⁴

1.  IRC § 132(c).