Employer-sponsored wellness programs often incorporate rewards or incentives to encourage employees to participate. Employers sometimes overlook the federal tax implications of a program’s rewards because there are numerous legal requirements for wellness program design.
As a general rule, wellness incentives are subject to the same federal tax rules as any other employee rewards or prizes: unless a specific tax exemption applies to the incentive, the amount of the incentive (or its fair market value) is included in an employee’s gross income and is subject to payroll taxes. Some key points to remember:
- Unless it is a nontaxable fringe benefit, any wellness incentive that is not medical care is taxable.
- Nontaxable benefits include t-shirts, water bottles and sports tickets.
- Gym or health club memberships are generally taxable.
- Cash and cash equivalents are always taxable.
- Never assume that all incentives are nontaxable because wellness programs provide medical care.
- Do not assume that because wellness program incentives tend to be small, they are nontaxable.
- Make sure to communicate wellness program incentive’s taxability to employees.
Other wellness rewards, such as small gifts or reduced cost sharing under a group health plan, may be nontaxable. If you have questions in regards to the taxability of your wellness program rewards and incentives, contact an AssuredPartners NL Director of Health and Productivity.
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