June 14, 2016
Authored by: Chris Rylands
In a recently released IRS Chief Counsel Memo, the IRS confirmed that wellness incentives are generally taxable. The memo also, indirectly, confirmed the tax treatment of wellness programs more generally.
As to the incentives, the IRS held that a cash payment to employees for participating in a wellness program is taxable to the employees. The memo did not deal with incentives paid to dependents, but we presume those would be taxable to the applicable employee as well. The IRS did say that certain in-kind fringe benefits (like a tee shirt) might be so de minimis as to be exempt as fringe benefits. Confirming the IRS’s long-standing position, however, cash does not qualify for this exception and is taxable.
This tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan. Therefore, if employees who participate in a wellness program