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IRS Memo Clarifies Tax Treatment of Wellness Program Benefits

Jun 08, 2016

HR360, Inc.
June 1, 2016

Memo Also Addresses Employer Reimbursement of Pre-Tax Cafeteria Plan Premiums

A recent Internal Revenue Service (IRS) memorandum clarifies whether certain employer payments paid to an employee for participating in a wellness program, such as cash rewards and premium reimbursements (if the premiums were originally made by salary reduction through a cafeteria plan), are excludable from the employee's gross income.

The memo addresses multiple scenarios and makes clear the following:

  • If an employee earns a cash reward under a wellness program, the amount of the cash reward is included in the employee's gross income and is subject to employment taxes.
  • If an employee earns a reward of a benefit under a wellness program that is not otherwise excludable from the employee's income (such as the payment of gym membership fees), the fair market value of the reward is included in the employee's gross income and is subject to employment taxes.
  • Reimbursement of all or a portion of premiums for a wellness program that the employee paid by salary reduction are included in an employee's gross income and are subject to employment taxes.

You may review the memo in its entirety by clicking here.

For more information on wellness programs, please visit our Wellness Programs section.

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