Are gym memberships tax-deductible for businesses? Find out here

IRS criteria: What counts as a deductible business expense?

Simply put, the IRS says that for a business expense to be deductible, it must be both ordinary and necessary. But what does that mean exactly?

• An ordinary expense is common and accepted in your industry.
• A necessary expense is helpful and appropriate for running your business.

Gym memberships are usually perks for general personal wellness rather than necessary costs for carrying out daily business operations. Generally, this makes them personal expenses, and Uncle Sam doesn’t allow deductions for personal expenses.

But can gym membership be tax-deductible in some cases? Let’s find out.

When gym memberships may qualify as a business deduction

Gym membership is tax-deductible for self-employed professionals in a related industry, such as fitness instructors and personal trainers. That’s because in most cases, they need access to the gym to run their business. What do we mean? They buy a membership to train clients rather than do personal workouts.

There are also some cases where the cost of gym benefits might still qualify as a business deduction even if you’re not in the fitness industry. For example, if your company offers gym memberships as part of a tax-deductible employee wellness program, you can write off the costs from the company’s taxable income.

Medical exceptions: When health-related gym costs are deductible

The IRS allows individuals to deduct a portion of their medical expenses from their taxable income. If you’re an employer covering those costs for employees through tax-deductible health plans, you can write them off in your company’s taxable income.

But first, the costs need to qualify as medical expenses. According to the IRS, medical expenses must mainly be for treating or preventing at least one of the following:

• A physical disability
• An illness
• A mental health condition

Costs that just improve general health don’t count. Health-related gym subscriptions can qualify as medical expenses, making them tax-deductible. The IRS says a gym membership counts as a medical expense if a doctor specifically recommends it to treat a health condition or improve a person’s body function.

Using HSA and FSA accounts for gym costs

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) let employees set aside tax-free money for qualified medical expenses. Both employees and employers can contribute to the accounts. Employees usually fund the accounts through pre-tax payroll deductions. As an employer, contributing to either of the accounts is optional, but there are advantages — they are tax-deductible expenses for you and boost employee morale.

Employees pay healthcare costs out of pocket, and later receive reimbursement from their HSA or FSA accounts. However, the costs must meet the IRS’s definition of medical expenses to be deductible.

The IRS says employees can use HSA or FSA funds to pay for a gym membership in very specific scenarios. The membership has to be prescribed by a doctor either to treat a particular medical condition or to help an employee’s body function better.

For example, this might apply when:

• A doctor prescribes gym sessions as part of physical therapy for an injury.
• A physician diagnoses someone with health conditions such as obesity, hypertension, or heart disease and prescribes gym workouts as part of the treatment plan.

Wellness programs: Employer-sponsored gym access

If you want to offer gym perks as part of your company’s wellness program or total rewards strategy, there are ways to do it without missing out on tax deductions.

For example, you can provide gym membership as a fringe benefit. That way, the membership becomes an additional wage for employees. Employee wages are generally ordinary and necessary business expenses that are tax-deductible.

You can also reimburse employees for qualified wellness expenses by contributing to HSA or FSA accounts to help reimburse medically-necessary gym costs that employees pay out of pocket. Those reimbursements are also tax-deductible.

Personal vs. business use: Drawing a clear line

If a gym membership isn’t strictly part of a doctor-prescribed treatment plan or directly tied to your business (such as fitness instructors training clients), the IRS sees it as a personal wellness expense. For gym memberships to be legitimate business costs, they must meet the IRS’s definition of ordinary and necessary expenses.

But what if gym membership is partly personal and partly business-related? If the primary purpose of the membership is general health, it’s personal. This disqualifies the cost from being tax-deductible.

Sample scenarios: When gym memberships are and aren’t deductible

Whether a gym membership counts as a write-off depends on why it’s being used. Here’s a quick look at what’s generally allowed — and what’s not.