Cash Reward for Wellness Plan Participation Is Taxable

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By Kristen Ricaurte Knebel

May 31 — Employers can't exclude cash rewards, such as a gym membership, for wellness program participation from an employee's gross income, the IRS said in an advice memorandum.

Reimbursing premiums that were paid to participate in a wellness program also aren't excludable from an employee's gross income, even if the payments were originally made through a cafeteria plan salary reduction, the Internal Revenue Service said in chief council advice memorandum 201622031, issued May 27.

These types of awards or reimbursements aren't allowed because they don't qualify as de minimis fringe benefits, the IRS said. De minimis fringe benefits are defined as any property or service that is “so small” that accounting for it wouldn't be reasonable, the IRS said.

Employer-paid gym membership fees don't qualify as medical care under tax code Section 213(d), so the fees wouldn't be excludable from income, even if it's provided through a wellness program. However, a wellness program providing a fringe benefit like a t-shirt would be providing something to participants in the program that is excludable from income, the IRS said.

“Generally, an employee choice between two or more benefits consisting of taxable benefits such as cash and nontaxable benefits such as employer-provided health coverage results in a cafeteria plan the benefits under which are included in income unless the choice is provided in accordance with the rules under section 125,” the IRS said.

Health screenings and “other medical care” provided by wellness plans are excludable from income, the IRS said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

Text of the CCA is at http://src.bna.com/frO.