Taxability of Wellness Incentives & Rewards
As a general rule, wellness incentives are subject to the same federal tax rules as any other employee reward or prize. They are generally taxable. The IRS has no specific exemption for wellness incentives such as incentives to employees who complete a task (example: a health care assessment form) or paying for gym memberships for example. Because there are numerous legal requirements for wellness programs in their design and implementation, the taxation piece often is overlooked.
Employers wrongfully assume that because wellness programs are part of their benefit package, that any incentives they provide are not considered income. The IRS however says that cash and cash equivalents (gift cards/ gift certificates) are always taxable. Other wellness incentives such as small gifts or reduced cost sharing generally are not taxable but must meet other criteria.
Employers can make costly mistakes in their wellness incentives, such as assuming that all incentives are nontaxable because they relate to medical care, or assuming because the incentives are “small” they fall under a de minimum rule, or failing to communicate the taxability portion to the employee prior to the actual reward.
If you have a wellness incentive program, or are considering one you should review information on the taxability of these incentives. For more information Click Here . You may also review information on taxation of fringe benefits in the IRS Publication 15B.