Understanding Fitness Reimbursements
Fitness reimbursements are becoming more and more common as companies recognize the importance of employee wellness. These reimbursements are financial incentives given by an employer to encourage employees to engage in fitness activities. The reimbursements can be for gym memberships, exercise equipment, and even fitness classes. However, the question that arises is whether these fitness reimbursements are taxable or not?
Types of Fitness Reimbursements
There are two primary types of fitness reimbursements, taxable and non-taxable. The taxable reimbursement is when an employer provides cash or cash equivalents to the employee for a fitness-related expense. This type of reimbursement is considered taxable income by the IRS and is subject to payroll taxes. Non-taxable reimbursements, on the other hand, are when an employer reimburses an employee for a qualifying fitness-related expense that is not considered taxable income.
Taxable Fitness Reimbursements
Taxable fitness reimbursements are considered income by the IRS and are subject to federal income tax, state income tax, and payroll taxes. Employers must report these reimbursements on the employee’s W-2 form. The taxable reimbursement amount is added to the employee’s wages, and the employer must withhold the appropriate taxes from the employee’s paycheck.
Non-Taxable Fitness Reimbursements
Non-taxable fitness reimbursements are not considered income by the IRS and are not subject to federal income tax, state income tax, or payroll taxes. These reimbursements are only non-taxable if they meet specific criteria. The IRS allows non-taxable reimbursements for qualifying fitness-related expenses, such as gym memberships, exercise programs, and classes. Additionally, the reimbursement must meet specific requirements, such as:
- The reimbursement is for a qualifying fitness expense
- The reimbursement is provided under a qualified wellness program
- The reimbursement does not exceed the employer’s cost for the program
- The employee must meet specific participation requirements
What You Need to Know
It is important to understand the tax implications of fitness reimbursements before accepting them. Failure to report taxable reimbursements can result in penalties and fines from the IRS. Employers must also understand the tax implications of offering these reimbursements to their employees.
Exceptions to Taxable Reimbursements
There are exceptions to taxable reimbursements. If an employee is participating in a qualifying wellness program, the employer can offer incentives to employees for achieving specific health-related goals. These incentives can be in the form of cash or non-cash rewards, such as gift cards or merchandise. These incentives are not considered taxable income and are not subject to payroll tax.
Reporting Non-Taxable Reimbursements
Employers are required to report non-taxable reimbursements on the employee’s Form W-2. The employer must show the employee’s total reimbursements in box 12 with the code FF. Employers must also keep detailed records of all reimbursements to ensure compliance with IRS regulations.
Conclusion
Fitness reimbursements can be a valuable tool for promoting employee wellness, but it is essential to understand the tax implications of these reimbursements. Taxable reimbursements are subject to federal and state income tax, as well as payroll tax. Non-taxable reimbursements are only non-taxable if they meet specific criteria. Employers must understand the tax implications of offering these reimbursements to their employees and ensure that they comply with IRS regulations. In the end, fitness reimbursements can be an excellent way to promote employee wellness, but it is essential to manage them carefully to avoid tax consequences.