It can be time-consuming to participate in a wellness program. Your employees may have to go to the gym, participate in a health screening, or sit through wellness trainings. While it is designed to help them get healthier, you still need to provide incentives to entice participation. Employees could respond well to a wide variety of special interest-based rewards; though, not all these rewards are doing the participants a favor.
That awesome, motivating reward you’re offering your employees for their hard work may be taxable to them. That means the gym membership you’re purchasing for all of your participating employees could land them in hot water if they don’t include it in their taxable income. However, other contributions won’t be taxed. How can you know the difference and choose the best option for your employees? The IRS released guidance on wellness programs in this document, but it’s a bit unwieldy; hence, these highlights below.
What Makes an Incentive Taxable?
The IRS supplied several examples of what does and does not constitute a taxable incentive. The main divider is whether or not an incentive can only be used for necessary medical costs. The other is whether the benefit is available exclusively for program participants. For example:
- Cash is taxable, but payments into an employee’s HSA are not.
- Gift cards are taxable, but prepaid cards that can only be used for medical expenses are not.
- Gym memberships paid for by the company as a general wellness tool rather than to target a specific health condition (obesity, diabetes) are taxable, but gym facilities provided by the company for all employees are not.
Want to incentivize your employees without placing an additional tax burden on them? Here are some more non-taxable options:
- Reducing an employee’s healthcare premium
- Providing healthy snack days
- Contributions to an employee’s FSA
- Discounts on goods and service otherwise sold by the employer
- Items that are considered “de minimis” (property or services the value of which is so small that it is unreasonable to track for tax purposes), such as branded water bottles and shirts
Rewarding your employees (and increasing participation) is an important part of any wellness program, and a great way to show you care in general. Just make sure they feel your appreciation and not an extra tax burden.