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The Wagner Law Group

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 

 

Established 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.

 

 

 

 

Contact Info

The Wagner Law Group

 

  Integrity | Excellence

  

Boston 

Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Palm Beach Gardens 

Tel: (561) 293-3590
Fax: (561) 293-3591
7108 Fairway Drive
Suite 125
Palm Beach Gardens, FL 33418

   

Tampa

Tel: (813) 603-2959

Fax: (813) 603-2961

101 East Kennedy Boulevard

Suite 2140
Tampa, FL  33602 

 

San Francisco

Tel: (415) 625-0002

Fax: (415) 358-8300

300 Montgomery Street

Suite 600

San Francisco, CA 94104

 

St. Louis

Tel: (314) 236-0065

Fax: (314) 236-5743
100 South 4th Street, Suite 550
St. Louis, MO  63102 

 

www.wagnerlawgroup.com

 

 

 

 

June 10, 2016

 

 Health and Welfare Law Alert

 

 

 

 IRS Releases Guidance to Address the Tax Treatment of Wellness Program Incentives

 

 

 

 

 

IRS has 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.

 

 

The 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 gym memberships.

 

 

Some 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 arrangements.

 

 

IRS 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.

 

 

In the 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.

 

 

All 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:

 

 

Medical 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.

 

 

Gym 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.

 

 

Reimbursement 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 incentive.

 

 

Takeaway 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.

 

 

The IRS Chief Counsel Advice Memorandum is available at: https://www.irs.gov/pub/irs-wd/201622031.pdf.

  

 

 

 

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This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.