June 7, 2016

Taxability of Wellness Program Rewards (article)

Wellness programs continue to be the focus of much attention.  Several weeks ago, the Equal Employment Opportunity Commission (EEOC) issued final regulations relating to wellness programs and how these rules work in accordance with the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, and other laws (ask your CBIZ representative for our Special Edition At Issue, Wellness: The ADA and Gina - Are the Rules Clear Yet?). 


Frequently a wellness program is designed to provide inducement in the form of a carrot and stick approach to encourage buy-in to the program.  A recently issued IRS Chief Counsel Advice Letter affirms what has been widely known, that any cash reward, incentive or other benefit that would not otherwise qualify as a deductible IRC Section 213(d) medical expense, such as a gift card or gym membership fees, are taxable and includible in the employee’s compensation, subject to federal income tax withholding, as well as FICA and FUTA taxes.  Only certain de minimis gifts such as a t-shirt or water bottle can be provided without imposing taxes.


Further, the Advice Letter affirms that a wellness program which would result in a double benefit, for example, the employee pays for the wellness program through the terms of a Section 125 (cafeteria) plan on a pre-tax basis and then receives a premium reimbursement or other reward, would not be allowed and such premium reimbursement would be treated as taxable compensation.


The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.   


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