Yes. Wellness programs often provide financial incentives such as gift certificates, cash, premium reductions, or dollars in a health reimbursement arrangement (HRA), flexible spending account (FSA) or health savings account (HSA). When the incentive is a health benefit, such as a premium reduction or a payment into a health FSA, HRA or HSA, the incentive may be excluded from taxation under Code Sec. 106. But when the incentive is cash or a cash equivalent, such as a gift certificate, gift card, coupon or cash bonus, the incentive will be included in income and will be taxable.

Incentives paid through a VEBA. In addition, if the wellness program financial incentives are paid through a Voluntary Employees Beneficiary Association (VEBA), the VEBA's tax-free status may be jeopardized, even though the incentive is tied to a permissible benefit (the health plan and wellness program). This is because VEBAs must generally provide only certain permissible benefits (e.g., health care). VEBAs may provide some level of other (e.g., impermissible) benefits, but the level of such impermissible benefits must be de minimis when compared to other benefits offered under the VEBA.

Source: Aspen Flexible Benefits Answer Book.