Employer Wellness Program Cash Reward Taxable; T-Shirt Isn't

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By Erin McManus

May 27 — A cash reward to an employee for participating in a wellness program must be included in the employee's gross income but a T-shirt can be excluded, the IRS Office of Chief Counsel said.

In a chief counsel advice memorandum (CCA 201622031) released May 27, the Internal Revenue Service said an employer couldn't exclude from an employee's gross income cash rewards or reimbursements of medical premiums for participation in a wellness program. Reimbursements or payments of gym membership fees also must be included, the office said.

The memorandum said any reward, incentive or other benefit provided by a medical program that isn't medical care as defined under tax code Section 213(d) “is included in an employee’s income, unless excludible as an employee fringe benefit under section 132.”

De Minimis Benefits

The value of any property—such as a T-shirt—or service that is provided by an employer to an employee is excluded from gross income if its value is so small as to make accounting for it unreasonable or administratively impracticable, the office said. The office added that this de minimis exclusion doesn't apply to any cash fringe benefit.

The memorandum said under Revenue Ruling 2002-3, reimbursements for health insurance coverage paid by the employee—including salary reduction amounts under a tax code Section 125 cafeteria plan—are included in an employee's gross income.

The CCA was dated April 14.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com

For More Information

Text of CCA 201622031 is in TaxCore.