Taxable Reimbursement

[GLKingII]

My Employer has a "Smart Choice Account" that provides up to $300 reimbursement for various gym related expenses.  We use it every year for our families Rec Center membership.  And every year it shows up on my pay stub as income.

IF I pay taxes on my income, then use said income to pay for the membership, then I get taxed AGAIN on the reimbursement, is this correct?  It is not an income.  My income is NOT increasing, in fact the Membership is over $400 so I don't get a full reimbursement.  It isn't a Gift or gratuity (they have another program that gives out rewards of various cash rewards that is taxed at the Gift tax).

[rjs]

No matter what your employer calls it, the $300 is just additional taxable pay. It's just like a small bonus. It is not intended to make your gym or rec center membership tax free, and in fact there is no way to do that. Payment for gym membership by an employer is not a tax-free benefit.

Say, for example, that you earn $40,000 for the year. Spending any of that money on personal needs does not reduce your tax. You cannot exclude or deduct any of your personal expenses from your taxable income. What your employer has done is increase your total pay to $40,300. But the same rules apply. Any of your pay that you spend on personal expenses cannot be excluded from being taxed.

You are not being double taxed on any of the $40,000 of base pay. You are being taxed on the total pay of $40,300 that you received: the $40,000 base pay plus the $300 bonus.