How to Handle Tax Treatment of Wellness Rewards
The IRS recently released a memorandum on its views of the tax treatment of rewards under employer wellness plans.
Cash, Cash-Equivalent Rewards
The memorandum confirms that certain tax rules apply to employer-sponsored wellness programs, but coverage, such as health screenings and other medical care, under these programs are generally excluded from an employee’s income. But cash rewards or cash-equivalent rewards earned from a wellness program are different.
Per the IRS, if an employee earns a cash reward through the wellness program, the reward must be included in the employee’s gross income under Code Section 61 and is a payment of wages subject to employment taxes.
For a cash-equivalent reward, the fair market value of the reward must be included in the employee’s gross income and is a payment of wages subject to employment taxes.
- If employers reimburse all or a portion of the premiums paid by the employee through a cafeteria plan for the company’s wellness plan, those reimbursements will be included in the employee’s gross income and are payments of wages subject to employment taxes.
- Although some non-cash benefits may be excludable as de minimis fringe benefits (e.g., a t-shirt for a company wellness plan), cash fringe benefits generally aren’t eligible to be treated as excludable de minimis fringe benefits.
For more information contact firstname.lastname@example.org. The information contained in this post, and any attachments, is not intended and should not be misconstrued as legal advice. You should contact your employment, benefits or ERISA attorney for legal direction.