A 20% employee discount on services qualifies as tax-free if:

The rationale behind this option being correct lies in the way tax regulations define the context for employee discounts. For a discount on services to be considered tax-free, it must be customary for those services to be offered to customers in the course of the employer's business. If the services are part of the standard offerings available to the public and are provided at a discount for employees, the Internal Revenue Service (IRS) permits this arrangement because it is viewed as part of normal business operations rather than a fringe benefit that incurs additional tax implications.

When services are widely available to customers, the provision of a discount to employees serves to create a similar advantage without it being classified as a compensatory benefit subject to taxation. This aligns with the IRS guidelines that determine how employee benefits are handled tax-wise, particularly with discounts that can commonly be expected in the marketplace.

The other options, while related to benefits and costing, do not fully capture the requirement that the services must be regularly offered for sale as part of the business model, which is the crucial element in establishing the tax-free nature of such discounts.