Employers may have to include in an employee’s taxable income the cash rewards for participating in a wellness program, the IRS said in a memo.
Issued May 27, the chief council advice memorandum 201622031 reviews whether an employer can exclude wellness plan cash rewards from an employee’s income under Sections 105 and 106.
Employers don’t have to include in an employee’s taxable income coverage defined as medical care under Section 213(d) or employee fringe benefits excludible under Section 132, the memo said.
On the other hand, wellness plan cash awards can’t be excluded from income because they don't qualify as de minimis fringe benefits, the IRS said. De minimis fringe benefits are defined under Section 132(e) as any property or service that is “so small” that accounting for it wouldn't be reasonable, the IRS said.
The memo notes that a tee-shirt would be considered a non-taxable de minimis fringe benefit, but employer-paid gym membership fees would not be considered a non-taxable de minimis fringe benefit.
The memo may not be used or cited as precedent, it said.
Because workplace wellness program participation is typically low, employers are increasingly turning to incentives to motivate participation, a recent Kaiser Family Foundation report said.
In 2015, 11 percent of employers offering health benefits offered incentives for employees to participation in a wellness plan, complete a health risk assessment or complete biometric screening, the Employer Health Benefit Survey said.
According to the report, there are about 24.1 million covered individuals in large firms that offer a financial incentive for wellness program participation.
Most of these firms (65 percent) offer incentives in the form of cash, gift cards or other merchandise, the report said. The firms that offer cash incentives typically offer between $1 and $500.
Firms are offering non-cash incentives, too. The report said that 34 percent of firms offer health plan premium or cost sharing discounts as an incentive and 19 percent offer other incentives such as paid time off.
See related article, Cash Reward for Wellness Plan Participation Is Taxable.
Design benefit plans and respond quickly and confidently to a range of potential issues with a free trial to the Benefits Practice Resource Center.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)