Health-conscious employees enjoy the ability to get a chair massage, to get encouragement or bonuses for meeting health goals or to work out in the middle of the day. At the same time, businesses can benefit. Some programs reduce health insurance premiums, while many of them also provide the opportunity for tax write-offs. However, wellness programs can also create tax complexities.
Workplace wellness programs are almost always going to be tax deductible expenses for businesses. While you might not see a line for "wellness programs" on a Schedule C or an 1120 corporate income tax return, they fit into existing categories of allowed writeoffs. The IRS has a long history of allowing employers to write off the perks that it provides to employees, covering many wellness programs. In addition, employers have been offering tax-free health insurance coverage to employees since the 1940s.
Wellness programs are definitely tax savers and can also cut overall corporate expenses. In a 2013 study of a large beverage manufacturer's programs, the Rand Corporation found that every dollar spent on wellness programs to help employees manage chronic disease yielded $3.78 in health care savings. These programs included helping employees comply with their medication regimens and increasing their self-care capabilities related to their diseases. However, lifestyle management programs -- which include help with quitting smoking, managing weight, improving fitness and reducing stress -- were much less effective, providing only 48 cents of payback for every dollar invested.
The Health Insurance Portability and Accountability Act limits a company's ability to offer wellness programs that change health premiums based on behavior. Under its nondiscrimination rules, companies may not be able to offer discounts that exceed 20 percent of the premium. Furthermore, the company may need to offer a way to earn the incentive without actually taking the desired action. Violating these rules could leave a company subject to excise tax penalties.
Companies can also create tax liability for their employees if their wellness programs offer rewards that have monetary value. For instance, offering an on-site gym isn't taxable to employees, but giving employees a cash bonus or a gift card for using the on-site gym would be. Some of these rewards can also be subject to employment tax withholding, as well as income tax, generating additional tax liability for the business.