Wellness Rewards Taxable? Yes! (article)
Once again, an IRS Chief Counsel Advice memorandum has been issued relating to the taxability of wellness program rewards, similar to prior IRS pronouncements (see Benefit Beat articles, Tax Treatment of Benefits Paid by Fixed Indemnity Health Plans (2/15/2017) and Taxability of Wellness Program Rewards (6/07/2016).
The latest CCA memorandum addresses a wellness program pursuant to which participants make a pre-tax contribution for participating in wellness program, and in return, the individuals receive significant dollars back. This CCA memo states that these dollars do not constitute an indemnity program free from taxation; therefore, the dollars are taxable. In its analogy, the IRS indicates that the methodology of the wellness program reflects no risk shifting or risk distribution necessary to constitute insurance to rise to the level of insurance, whether provided through an insurer or under a self-funded arrangement. Thus, the IRS concludes that there must be the requisite risk of economic loss in order for a program to qualify for tax-favored status as an insurance program.
As a reminder, for a wellness program reward or incentive to be tax-favored, there must be a specific provision in the tax code allowing for such status. Generally, wellness rewards such as cash awards, gift cards, gym memberships and the like are taxable compensation – there is no di minimus exception for these types of awards. The only di minimus exception for a wellness program reward would be an occasional low cost item such as a water bottle, t-shirt, or healthy snacks. Generally, the only other types of wellness rewards that are tax-favored are those connected with a health plans such as a premium reduction or a deductible discount, or the like.
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.