Employer-sponsored wellness programs often incorporate rewards or incentives to encourage employees to participate. Because there are numerous legal requirements for wellness program design, employers sometimes overlook the federal tax implications of a program’s rewards.

Federal tax law does not include a specific exemption for wellness program incentives. While coverage by an employer-provided wellness program that provides medical care is generally excluded from an employee’s gross income, wellness incentives are subject to the same tax rules as any other employee rewards or prizes. Unless a specific tax exemption applies to the incentive, the amount of the incentive (or its fair market value) is included an employee’s gross income and it is subject to payroll taxes. The two main tax exemptions that apply to wellness incentives are the exclusions for medical care under Code Sections 105 and 106 and employee fringe benefits under Code Section 132.

Please see the attached compliance overview and contact your NEEBCo representative with any questions you have.

Taxability of Wellness Plan Rewards