Well-intentioned employers everywhere are offering gym memberships to their employees as a fringe benefit and for good reason — benefits like this make it easier to recruit and retain employees and may even lower healthcare costs for employers. However, employers are often unaware of the tax implications of a benefit like this, putting them at increased risk of fines and penalties — and taxing employees later, which can cause discontentment and disengagement. We checked in with one of our experienced HR consultants, Sherri Bennett, MBA, SPHR, SHRM-CP, to get expert guidance on what you need to know in order to expand your benefits offering to include gym memberships.
Tax Implications of Employer-Sponsored Gym Memberships
The IRS classifies infrequent benefits of minimum value as de minimis. These benefits include things like a company t-shirt, occasional donuts or flowers to celebrate a work anniversary and they are not considered taxable income to employees.
However, no benefit that is ongoing (like a gym membership) qualifies as a de minimis benefit, and one ruling determined that benefits that exceed $100 in value are never considered de minimis either.
Employers choosing to offer paid, or partially paid gym memberships, can do so and are likely to see benefits themselves for doing so, but they must add the dollar value of that membership to their employees' taxable income.
These benefits are subject to federal income tax, Social Security tax, Medicare tax, and state income tax, so both the employer and employees must pay their portion of tax on the income.
This can be challenging to administer, but there are other options. Instead, some employers partner with a local gym to provide discounted memberships to employees at no cost to the employer.
As a professional employer organization (PEO), we understand the health and wellness of our client-employees is critical. Just like how we leverage our buying power to provide Fortune 500-level medical benefits to our clients and their employees, we also leverage our buying power to help reduce to cost of expensive gym memberships. When businesses partner with us for their comprehensive HR needs, all of their employees gain access to a discount available with a particular gym network that we have chosen to partner with. While we don't manage gym memberships as part of our benefits administration, the discount generated from our buying power helps buffer the costs associated with these memberships.
Any time you throw together a business case for a new benefit, it's important to explore and fully understand IRS guidelines and tax implications to stay compliant. Partnering with a PEO can ease the burden, so you can focus on what you do best.
Contact us today to learn more about how our payroll services can streamline your operations and enhance your financial efficiency.