The benefits of workplace wellness programs are endless. Not only is it useful for attracting top talent, but healthier employees inevitably lead to “lower medical claims costs, which leads to lower medical premiums, which leads to a better profit margin.”
To boost engagement, most employers offer some sort of incentive to employees for participation. However, employers be careful! On your quest to do goodery, it may be possible that you are performing illegal tax practices.
In 2016, the IRS issued a chief counsel advice tax memorandum (210622031) to clarify: workplace wellness incentives are taxable and they are not considering medical benefits! Attorneys say that the memorandum signals that the IRS is paying more attention to these programs. Now it’s more important than ever to take a second glance at your wellness programs incentives!
So which incentives are taxable?
- Cash rewards and gift cards for wellness programs are taxable no matter the amount and frequency (even if they’re through a third-party company like IncentFit).
- Reimbursements for wellness programs are taxable and should be included in an employee’s gross income.
- Off-site fitness programs or memberships to athletic facilities are also taxable. Health club memberships are not considered medical benefits unless they are prescribed by a professional to treat a specific medical concern. Even if you’re paying the gym directly, it should still be treated as taxable income to the employee!
- Wages Paid for Paid Time Off (PTO) are also taxable.
Here’s what is not taxable:
- De Minimis Fringe Benefits
- De Minimis: Small and infrequent non-monetary gifts such as occasional company swag and snacks.
- Qualified Employee Discounts: This is a discount on services that the employer offers to the public. To qualify, it generally cannot exceed 20%.
- On Site Athletic Facilities: Use of an onsite athletic facility is nontaxable as long as it is either owned or leased and operated by the employer. Though we wouldn’t recommend this approach because they’re expensive and utilization is typically low.
- Medical Care: Defined as “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” these do not take account for general preventative care.
IncentFit can help!
Fortunately, instituting wellness program incentives is what IncentFit does best, and there’s a lot that we can do to make the process not only easier but legally sound. Here are just a few ways that Incentfit can provide for your company with Uncle Sam’s approval:
Tax-free
- Contributions to an HSA, FSA, or 401k
- Health insurance premium offsets
- Charitable donations
Taxed by the IRS but we handle accounting and compliance
- Payroll contributions
- Direct deposit into employee bank accounts
- Paid time off
- Gift cards and merchandise
Whatever direction you want to take your wellness program, Incentfit will make sure that the IRS isn’t knocking on your door! Schedule some time with us if you’d like to learn more.