Understanding What the IRS Actually Objects To
The term "double dip" appears throughout IRS guidance on wellness programs—but it's often misunderstood. Critics use it to dismiss all FICA savings programs, while missing the crucial distinction between problematic structures and compliant alternatives.
This site explains exactly what the IRS means by "double dip" and why it doesn't apply to properly structured dual-premium programs.
A "double dip" occurs when an employer claims tax benefits on BOTH ends of the same transaction:
1. Premiums are paid with pre-tax dollars (reducing taxable wages, saving FICA)
2. Benefits from the same policy are claimed as tax-free to the employee
The IRS objects because you can't get tax advantages on both the premium payment AND the benefit payment from a single policy funded entirely with pre-tax dollars. That's the "double dip."
What "double dip" does NOT mean:
The term does NOT refer to any program that saves FICA taxes. It does NOT apply to dual-premium structures where pre-tax funding goes to one policy and after-tax funding goes to a separate policy. The IRS has never challenged the principle that after-tax premiums produce tax-free benefits.
When evaluating any wellness program, the question isn't "Does this save FICA taxes?" The question is: "Where do the wellness benefits come from—a pre-tax funded policy or an after-tax funded policy?"
If the wellness benefits come from a policy funded with after-tax employee premiums, Section 104(a)(3) applies and benefits are properly excludable. That's not a double dip—that's following the law as written.
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