From the Hotline: Fitness Expense Reimbursement and Taxation Concerns

Question: We would like to implement a fitness reimbursement program for our employees and their family members on our company-sponsored health plan. Is a fitness reimbursement program that provides a limited expense reimbursement per month tax-free?

Answer: Reimbursements must consider the impact of taxation on any income (or income equivalent) includable in gross income. Unless there is a specific Internal Revenue Code provision that explicitly excludes a payment from gross income, such a payment is taxable income.

It is typical for employer-provided health benefits to be excluded from gross income under Internal Revenue Code §§ 104 – 106 when such benefits are for medical care as defined in § 213. However, payment for an off-site gym membership is not typically medical care under current regulations.

By contrast, if the gym is actually an on-premise athletic facility provided by an employer for its employees, the value of using such a gym would not be taxable if it is operated by the employer and substantially all of its use is by employees and their families.