In their article in the CPA Journal: The Voice of the Profession, entitled "20 Questions About Establishing a Health & Wellness Program in the Workplace, Peter Karl III and Dominick G. Mondi... (click to "Read More" for entire article)
DEFINITIONS:
WIMPER: Wellness Integrated Medical Plan Expenses Reimbursement Program
SIMERP: Self-Insured Medical Reimbursement Plan
WIMPER/SIMERP program saves employers money due to a reduction in FICA taxes paid because the amount elected by the employee to be contributed to the plan is not considered to be wages and therefore NOT taxable for Social Security purposes.
It provides the opportunity to purchase additional benefits, that might not otherwise be affordable without affecting net pay.
These pre-tax contributions are made at the election of the employee through a written salary reduction agreement that is the basis for a Section 125 Cafeteria Plan.
By contributing a portion of their salary to pay for qualified benefits, employees reduce their compensation as their contributions are not considered wages for income tax purposes.
A WIMPER Program allows a company to make a benefit allowance available to employees with reimbursements for participation in a wellness plan.
This results in lower Federal Insurance Contributions Act (FICA) taxes for both the employer and employee. (see samples above)
A salary reduction agreement that allows the employee to make pre-tax contributions to a Section 125 Cafeteria Plan to pay for qualified benefits, such as accident & health benefits or group benefits, such as term life insurance.
An IRC Section 106 wellness plan funded with pre-tax dollars (e.g., from cafeteria or other qualified plan.
A SIMERP that provides for tax-free reimbursements of medical care expenses described in IRC Section 105(b) and defined in IRC Section 213(d). This includes, but is not limited to, insurance covering medical care.
HIPAA regulations do not impose limits on incentives on a participatory program such as one that only asks employees to complete a Health Risk Assessment.
In order to remain complaint with the IRS requirements, how is the deduction and reserve handled under a WIMPER program for an employee who is no longer meeting all of the plan participation requirements?
As long as all participating employees within a given class receive the same incentive regardless of the answers provided on a Health Risk Assessment about their health status or medical history, these wellness programs do not violate HIPAA and the ADA. This includes financial and in-kind incentives (e.g., reductions in insurance premiums, cash, time-off awards, prizes and other items of value.
The plan sections are irrevocable unless there is a change in status based on one of the following:
Can highly compensated employees contribute additional amounts to a cafeteria plan and subsequently receive more medical reimbursements under a WIMPER Program?
Highly compensated employees (HCEs) may receive more reimbursements, but these may be taxable.
Testing must be performed each year in order to determine whether the plan is non-discriminatory in favor of HCEs. Employers must ensure that most of the eligible employees benefit from the company plan.
A SIMERP, which is a part of a WIMPER Program, allows for separate employee classifications; and therefore, if the WIMPER program meets all other participation requirements, the combined platform may give HCEs higher after-tax reimbursements to purchase additional benefits (e.g., disability policy).
Even if the classification is uniform for all participants and reimbursements are the same (e.g., do not allow for a higher level of reimbursement), these plans may still be appealing to HCEs as the supplemental insurance can cover a portion of the risk in a cost-effective way.
In Memorandum 201703013, (Dec. 12, 2016), the IRS Chief Counsel stated that payments received by employees under an employer-provided fixed indemnity health plan were considered gross income under IRC Section 106(a) if the value of the coverage was excluded from an employee's gross income and wages.
But the value of an employer-provided wellness program that reimburses employees for medical care as defined under IRC Section 213(d) is generally excluded from an employee's gross income under IRC Section 106(a), as any amounts reimbursed for medical care (i.e., rewards, incentives, or other benefits) under IRC Section 105(b).
This memorandum clarifies the tax treatment of payments received from a fixed indemnity health plan is considered gross income if the contributions were made pre-tax as the exclusions under IRC Sections 105(b) and 104(a)(3) do not apply.
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In Memorandum 201719025 (April 24,2017), the Chief Counsel concluded that wellness plans independently qualify as accident and health plans under IRC Section 106 and contributions to an IRC Section 125 Cafeteria Plan are considered pre-tax.
Furthermore, the Chief Counsel expressed that flex credits awarded under a wellness plan are non-taxable if used to purchase qualified benefits such as group term life insurance, but are taxable if used to purchase non-qualified benefits such as whole life insurance coverage or a gym membership.
ACA repeal would not impact participatory wellness plans associated with the WIMPER program.
The ACA amended Employee Retirement Income Security Act (ERISA) to prohibit wellness plans from discriminating against individual participants and beneficiaries based on health status.
Participatory programs that reward individuals for attending a period health education seminar or offer health coaching to guide participants by providing education and support in several areas including exercise and nutrition, area likely to remain permitted even without ACA.
In addition, employees can save income taxes because, when part of a WIMPER program, pre-tax contributions of gross pay are made to an IRC Section 125 Cafeteria Plan.