Taxation of Wellness Programs

The Office of Chief Counsel of the Internal Revenue Service has issued a memorandum on “Tax Treatment of Wellness Program Benefits and Employer Reimbursement of Premiums Provided Pre-tax Under a Section 125 Cafeteria Plan”.  Not quite a catchy title I admit but it does contain guidance that is useful.  The two questions  that were at issue are as follows:

1. May an employer exclude from an employee’s income under section 105 or section 106 cash rewards paid to an employee for participating in a wellness program?
2.  May an employer exclude from an employee’s income under section 105 or section 106 reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan?

The conclusion reached by the Chief Counsel was no on both counts. 1. An employer may not exclude from an employee’s gross income payments of cash rewards for participating in a wellness program. 2. An employer may not exclude from an employee’s gross income reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan.

For those of you who need to research this closer I included the link to the memorandum issued on April 14, 2016 and released on May 27, 2016.  They review three different situations and then provide the law and analysis you may need if this affects any benefits you are offering.

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