The Wagner Law Group
Wagner Law Group, A Professional Corporation, is a nationally
recognized ERISA & employee benefits, estate planning,
employment, labor & human resources practice.
in 1996, The Wagner Law Group has 22 attorneys engaged
exclusively in employee benefits, estate planning and
employment law. Six of our attorneys are AV rated by
Martindale-Hubbell as having very high to preeminent legal abilities
and ethical standards. The firm is among the largest ERISA boutiques
in the country. Our practice is national in scope, with clients in
more than 40 states and several foreign countries.
Wagner Law Group
Fax: (561) 293-3591
7108 Fairway Drive
Palm Beach Gardens, FL 33418
East Kennedy Boulevard
Tampa, FL 33602
Francisco, CA 94104
100 South 4th Street, Suite 550
St. Louis, MO 63102
June 10, 2016
Health and Welfare Law
IRS Releases Guidance to
Address the Tax Treatment of Wellness Program Incentives
released guidance, in the form of a Chief Counsel Advice (CCA)
memorandum, to address the tax treatment of workplace wellness
program incentives provided by employers to employees.
Background. The term "wellness program" generally
refers to a health promotion and disease prevention program or
activity offered by an employer to employees, and sometimes their
spouses, either as part of the employer's group health plan, or
separately as a benefit of employment. Examples of wellness programs
include diabetes management programs, weight loss plans, and
preventative health screenings.
Affordable Care Act ("ACA") authorizes employers to provide
incentives to employees for participating in workplace wellness
programs. Examples of wellness program incentives include a discount
on the employee's group health plan premium, cash rewards, or paid
employers have paired their wellness programs with either a Code
Section 125 cafeteria plan or a health reimbursement arrangement plan
in an effort to save on FICA taxes by reducing employees' taxable
income while their net pay remains virtually the same. After learning
of the existence of these programs, IRS has responded by issuing the
CCA memorandum to confirm the tax rules applicable to such
Chief Counsel Advice Memorandum. The CCA analyzes three specific fact
patterns, all of which involve wellness programs that provide health
screenings and other health benefits that generally qualify as
excludable health care coverages.
first scenario, the wellness program is provided at no cost to the
employees. In the remaining two scenarios, employees who elect to
participate in the programs are required to pay a wellness program
premium through a cafeteria plan.
three programs offer rewards for participation such as cash or other
benefits that do not qualify as Code Section 213(d) medical expenses
(e.g., gym membership fees). One program also provides a
benefit in the form of a reimbursement of all or a portion of the
wellness program premium that the employee paid on a pre-tax basis.
Guidance. The CCA memorandum confirms the following:
care vs. non-medical care incentives. Coverage by a workplace wellness program that
provides medical care is generally excluded from an employee's gross
income. However, any wellness program reward, incentive or benefit
that is not medical care is includible in a employee's income unless
it is an excludable fringe benefit under Code Section 132.
NOTE: Code Section 132 defines an excludable fringe
benefit as any property or service the value of which is so small so
as to make accounting for it unreasonable or administratively
impracticable. Cash benefits are never excludable fringe benefits.
membership fees. Employer
payment of gym membership would not be excludable from an employee's
income, even when received as a wellness program incentive because
payment of gym membership fees is a cash benefit.
of Participant Premiums.
Employer reimbursements of health insurance premiums paid by
employees via salary reduction are included in the employees' gross
income. The CCA confirms that the result is no different where the
premium reimbursements come in the form of a wellness program
for Employers. IRS may seek
to collect taxes, penalties, and interest related to the failure to
properly withhold income and employment taxes from the wellness
program incentives. Thus, employers that currently sponsor wellness
programs that are not in compliance with the guidance provided in the
CCA memorandum are advised to consult with qualified legal counsel
about the action steps required to correct the failure.
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