Federal tax law does not provide a specific exemption for wellness program incentives. While coverage under an employer-provided wellness program that provides health care is generally excluded from an employee's gross income, wellness incentives are subject to the same tax rules as any other employee reward or award. Some health insurance companies offer employee wellness programs for an additional premium, and workers can choose to include the wellness program in their coverage. If you pay your employee's premiums or part of the premiums, you can deduct this expense from your company's taxes.
A wellness program is a workplace program aimed at improving and promoting health and fitness, in which an employer generally offers premium discounts, cash rewards, gym memberships, or other incentives to participate. Wellness programs can be tax-free for an employee and may be offered under employer-provided health plan benefits or reimbursements excluded from employee income under Sec. In all of these cases, when an employer makes a contribution to health coverage or the coverage is paid before taxes, the plan (group or individual) is considered an employer-provided benefit. Workplace wellness programs will almost always be tax-deductible expenses for businesses.
While you may not see a line for wellness programs on a Schedule C or on an 1120 corporate tax return, they fit the existing categories of permitted deductions. The IRS has a long history of allowing employers to deduct benefits it provides to employees, covering many wellness programs. In addition, employers have been offering tax-free health insurance coverage to employees since the 1940s. So yes, corporate wellness programs are tax-deductible expenses in the United States.
While you may not find a line for “wellness programs” on a Schedule C or on an 1120 corporate income tax return, these expenses fit the existing categories of permitted deductions. CPAs and their clients who offer wellness program benefits would do well to review the details of their program funding agreements and the administration of benefit payments to ensure that benefits are excluded or reported correctly in employee salaries. Sole proprietorships and single-member LLCs use the “Expenses” section of Schedule C, multi-member corporations and LLCs use the “Deductions” section of Form 1065, while Corporations use the “Deductions” section of Form 1120 or Form 1120S (for S corporations). The wellness plan provides the typical benefits of the wellness program; however, the plan also offers substantial incentives that, in essence, reimburse the employee's pre-tax contributions to the wellness plan. The IRS also maintains that any reimbursement by the employer of welfare contributions from an employee's cafeteria plan will also be included in the employee's income and is subject to labor taxes. The IRS has issued several memos to clarify which welfare benefits can be excluded from employee salaries and which will trigger labor tax reporting and payment requirements (see IRS Notice 2004-45 and IRS Notice 2004-50).
However, the IRS has warned employers that many popular wellness incentives are not tax-free health plans, but are taxable for employees. States like North Carolina and Indiana offer tax credits to companies starting employee wellness programs. The Health Insurance Portability and Accountability Act limits a company's ability to offer wellness programs that change health premiums based on behavior. A wellness program can be offered separately from an employer's comprehensive health coverage, and the benefits of that program can be excluded from an employee's income as a health and accident plan. In the first example, the plan is a stand-alone plan; in the second, it is combined with a welfare benefit plan and flexible credits that can be used to obtain benefits under a Sec.
Wellness programs focus on preventing health problems through exercise, massage, and nutritional counseling. Keep in mind that states like North Carolina and Indiana offer tax credits to businesses that start employee wellness programs. This definition covers the costs of health insurance premiums (if not deducted from your pre-tax paycheck in dollars), doctors, dentists, hospitalizations, diagnostic tests, prescription drugs, and medical equipment. If you use your vehicle for medical purposes, you can use the mileage rate set by the IRS and include your out-of-pocket expenses such as cost of gasoline and oil. The IRS concludes that in the first example, the self-funded health plan does not have the effect of insurance and there is very little risk of economic loss for either employer or employee so plan payments are not excluded from the employee's income according to Sec.