What This Memo Actually Means for Wellness Program Compliance
CCA 202323006 analyzes a specific fact pattern with the following characteristics:
The IRS concluded that in this specific structure, the $1,000 monthly wellness payments are includible in gross income and subject to FICA, FUTA, and federal income tax withholding.
Buried in the Law and Analysis section is a critical acknowledgment that most commentators overlook:
"Section 104(a)(3) provides that gross income does not include amounts received through accident or health insurance... for personal injuries or sickness. This exclusion does not apply, however, if the amounts are either (1) attributable to contributions by the employer that were not includable in the gross income of the employee, or (2) paid by the employer."
— CCA 202323006, Law and Analysis
The inverse statement is equally important: when amounts ARE attributable to contributions that WERE includable in gross income (i.e., after-tax dollars), Section 104(a)(3) DOES apply, and benefits ARE excludable.
The IRS is not challenging the fundamental principle that after-tax premium funding produces tax-free benefits. The IRS is challenging structures where the entire premium is paid pre-tax and the employer claims benefits are also tax-free—the "double dip" the IRS objects to.
The memo explicitly does NOT address:
Under IRC §6110(k)(3), Chief Counsel Advice memoranda "may not be used or cited as precedent." CCA 202323006 represents the IRS position in one specific case with one specific fact pattern. It does not establish binding rules for all wellness programs.
CCA 202323006 analyzes a structure where:
| Element | CCA 202323006 Fact Pattern | Dual-Premium Structure |
|---|---|---|
| Premium Funding | 100% pre-tax (Section 125) | Pre-tax for MEC/qualified benefits; After-tax for wellness |
| Number of Policies | Single policy | Two separate policies |
| Wellness Premium Source | Salary reduction (pre-tax) | After-tax payroll deduction |
| Applicable Code Section | §105 (employer-funded) | §104(a)(3) (employee-funded with after-tax $) |
| IRS Concern | Addressed directly | Not addressed by this CCA |
CCA 201703013 (January 2017) explicitly stated the after-tax principle:
"However, to the extent that premiums are paid with after-tax dollars, payments by the plan are excluded under § 104(a)(3), without regard to the amount of any medical expense incurred by the event upon which the payment is conditioned."
— CCA 201703013
This principle—that after-tax premium funding supports tax-free benefits under Section 104(a)(3)—has never been disputed by the IRS in any published guidance.
CCA 202323006 is properly understood as addressing a specific compliance problem: structures where employers claim "double" tax benefits by funding premiums pre-tax AND claiming benefits are tax-free.
The memo does not challenge:
The PTE Gold Book provides 200+ pages of detailed analysis of CCA 202323006 and all related IRS guidance, including specific compliance frameworks for dual-premium structures.