Many employers provide incentives and rewards to employees to encourage participation in wellness programs: programs designed to improve employee health. In a recent IRS Chief Counsel Memorandum (CCM 201622031), the IRS confirmed that employer wellness program incentives provided to employees are generally taxable.
Examples of wellness incentives include cash incentives, gym club memberships, raffles, and prizes.
In the Memo, the IRS ruled that any cash wellness plan incentive is considered taxable to the employee. Certain fringe benefits, however, would be considered de minimis and thus would not give rise to income to those employees. The IRS used a t-shirt as an example of a de minimis benefit. The tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan.
If you should have any questions about this tax tip or would like to discuss it further, please contact Eric Gregory in our Troy, Mich. office at 248-433-7669 or any other member of the Employee Benefits group.