IRS reminds employers: Certain wellness program incentive payments are taxable

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Wellness incentive program payments will not receive favorable tax treatment if they are not related to health-care expenses, the IRS announced in a guidance memorandum issued on Wednesday. This is the fourth chief counsel advice, or CCA, that the IRS has released on this topic. Although a CCA is not formal guidance that may be used or cited as precedent, it provides an indication of the agency’s views on an issue.

The term “wellness program” generally refers to a health promotion and disease prevention program or activity, which include diabetes management programs and weight loss plans, 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, according to the agency. Employers may give certain incentives for participation in wellness programs, including a reduction in employee costs for group health-care coverage and certain other programs.