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5 non-taxable wellness incentive options

Posted August 11, 2022

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Wellness programs and non-taxable incentives go hand-in-hand when it comes to keeping your employees motivated. Employer-sponsored wellness programs commonly incorporate rewards and incentives to encourage employees to participate in various health activities and health awareness sessions, yet not all the rewards and incentives may be doing the participants a favor.

Enter: The IRS

That motivating reward you’re offering your employees for joining the company gym membership may be taxable – meaning it might land your employees in hot water if they don’t include it in their taxable income. So how can you know the difference and choose the best wellness program incentive for your employees? 

What makes an incentive taxable?

The main divider is whether or not an incentive qualifies as an “eligible medical expense” under Code § 213(d) or “fringe benefit” under Code § 132. Cash and non-cash incentives, payments, and rewards paid to an employee are not excludable from an employee’s taxable income merely because they are paid under an employer wellness program. Now the question is: How can you incentivize your employees without placing that extra burden on them?

5 non-taxable wellness incentives for your company

Reduce healthcare premiums

Motivate your employees and reduce their healthcare premium if they stop smoking or if they lower their cholesterol. This is a motivating behavior for employees to save money and their health!

Provide healthy snack days

Instead of having donuts in the office Friday mornings, try offering yogurt parfaits or breakfast muffins. A few quick swaps will end the week on a high note and make progress to better health.

Contribute to HSAs or FSAs

Encourage your employees to undergo a cholesterol screening (or any other health screening) for a contribution to their health savings accounts (HSAs) or flexible spending accounts (FSAs), since contributions are pre-tax!

Branded water bottles, T-shirts, and company items

Need giveaway ideas for your wellness program? Between pedometers, fitness bags, T-shirts, coolers, sport water bottles, lunchboxes, etc. – your employees will be excited to represent their company in a health-conscious way.

Discounts on fitness items

Pair up with other companies and offer your employees a discount at their favorite athletic brand. This gives them the motivation (and tax-free) reward they deserve for participating in your company’s wellness program.

Learn more about the impact improved employee wellness can have on your business. Get your free guide! 

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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel or tax advisor.

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