Fitness and wellness LSA eligibility standards

Most HR teams know they should be offering fitness and wellness benefits. The harder question is what, exactly, those benefits should cover.

When a gym membership gets reimbursed without a second thought, but a massage therapy claim gets kicked back, employees notice. When a smartwatch qualifies under one company's plan but not another's, confusion builds fast. The truth is that eligibility for fitness & wellness spending accounts is not standardized across the industry, and the decisions employers make during plan design have consequences that ripple through the employee experience and into compliance territory.

This article walks through the core eligibility categories, the nuances that trip up even experienced benefits teams, and what separates a well-designed fitness & wellness account from one that creates more problems than it solves. 

For the complete list of eligible and ineligible items for fitness and wellness LSAs, including guidance on dual-purpose items and regional considerations, the full eligibility standards guide is available for download.

Key takeaways

• A fitness & wellness spending account is an employer-funded benefit that lets employees spend on health and well-being expenses that matter to them, with eligibility defined entirely by the employer.
• Eligibility decisions are not one-size-fits-all. Categories like fitness activities, digital health apps, accessories, equipment, and well-being services each come with their own considerations.
• Dual-purpose items (expenses that serve both wellness and medical purposes) are one of the most commonly mishandled areas in plan design, and getting them wrong creates compliance exposure.
• US-based plans must exclude medical expenses to avoid inadvertently triggering group health plan rules under ACA regulations. Global plans operate under different standards.
• Forma's fitness & wellness spending account eligibility standards guide gives HR teams a complete, category-by-category breakdown to build a compliant and employee-friendly program. Schedule a demo today to see how Forma helps companies put this into practice.

What is a fitness & wellness LSA?

A fitness & wellness spending account is a type of employer-funded LSA that gives employees a designated budget to spend on health and well-being expenses. Unlike an FSA or HSA, which are governed by IRS rules and limited to specific medical expenses, a fitness & wellness spending account is employer-defined, meaning the company decides what's eligible.

This flexibility is both the biggest advantage and the biggest responsibility of running this type of benefit. Done well, it creates a program employees genuinely use. Done poorly, it leads to claims confusion, rejected reimbursements, and avoidable administrative work.

How it works

Employers set the parameters: which expense categories are covered, what the annual funding amount is, and whether any documentation is required to qualify certain items. Employees then spend their balance on the eligible expenses that matter most to them, whether that's a gym membership, a fitness tracker, or a meditation app.

It's worth mentioning that funds in a fitness & wellness spending account are treated as taxable income. This differs from pre-tax accounts like FSAs and HSAs, and it's a detail that benefits teams should communicate clearly to employees during enrollment to set the right expectations.

Why companies are moving toward this model

Traditional wellness perks, think subsidized gym memberships or on-site fitness classes, assume that every employee wants the same thing. For a distributed, multi-generational workforce, that assumption rarely holds up.

A flexible wellness benefit gives employees agency over how they invest their wellness budget, which drives higher engagement. Research from the Global Wellness Institute found that a 100% increase in wellness spending per capita (just $10) corresponds to a 4.7% increase in employee happiness. That return is difficult to replicate with fixed, uniform programs that employees may not find relevant.

The main eligibility categories to know

Getting eligibility right starts with knowing what categories exist and how most companies approach them. The five primary categories in a fitness & wellness spending account each serve different employee needs, and inclusion rates vary considerably across companies.

The following is a high-level look at each category. The full eligible items list with employer adoption rates and compliance notes is available in Forma's fitness & wellness spending account eligibility standards guide.

Fitness activities

Fitness activities are the most widely included category, covering things like gym memberships, fitness classes, personal training, athletic events like 5Ks, and outdoor activities. This category is a natural starting point because it aligns with how most employees think about wellness spending.

Some items within this category fall into dual-purpose territory, where eligibility depends on plan design decisions made at the employer level. Personal training, for example, can be a straightforward wellness expense or a medically directed activity, and how the plan handles that distinction matters. We found that 91% of Forma customers include this category, making it the most universally adopted of the five.

Digital health and wellness apps

App-based wellness has grown quickly as a category, particularly for remote and hybrid workforces. Fitness apps, meditation apps, sleep tracking tools, nutrition programs, and habit-building apps all fall under this umbrella.

For companies building employee wellness programs that serve distributed teams, digital health tools are often one of the most equitable categories to include. They're accessible regardless of where an employee lives, which makes them a natural fit for global programs and a strong default for teams that can't predict where their workforce will be located year over year.

Fitness accessories and equipment

This category covers physical goods: wearables, athletic clothing, fitness trackers, home gym equipment, and outdoor activity gear. It's also one of the most nuanced from an eligibility standpoint, because several common items carry dual-purpose status.

Home fitness equipment like a treadmill or connected fitness bike is a clear example. It serves obvious wellness purposes, but it's also an item where the plan design decision around Letters of Medical Necessity (LMN) determines whether it qualifies. The full eligibility guide breaks down which items in this category carry that flag and how to handle them in plan documents.

Well-being services

Well-being services include massage therapy, spa and sauna treatments, weight management aids, aromatherapy, and similar offerings. This category reflects a broader view of what wellness means, one that goes beyond physical fitness to include recovery, stress reduction, and overall self-care.

Several items here carry dual-purpose status, and their eligibility under a lifestyle spending account depends on whether the plan document requires medical justification before reimbursement. That's a nuance that's easy to get wrong without a clear reference guide, and it's one of the areas where HR teams most commonly run into inconsistent claims outcomes.

What's typically excluded for US-based companies

For US companies, medical expenses should not be included in a fitness & wellness spending account or any LSA program. The reason is compliance-driven: when an employer-sponsored plan reimburses medical expenses, it can inadvertently create a group health plan under ACA regulations. 

Lifestyle spending accounts generally cannot meet the compliance requirements that apply to group health plans, which creates real legal exposure for employers who don't draw this line clearly.

The following expense types are typically excluded from LSA-based wellness accounts for US-based employees:

• Acupuncture and chiropractic services
• Copays and deductibles
• Over-the-counter medications
• Medical services and physical exams
• Smoking cessation programs
• Surgery and medical procedures

Global programs operate under different standards, and what's excluded for a US employee may be fully eligible for an employee in another country. Regional tax treatment and local regulations can impact those determinations.

Dual-purpose items and why they complicate eligibility

Dual-purpose items are one of the most commonly misunderstood areas in wellness account plan design. Most HR teams building a fitness & wellness spending account for the first time don't encounter this concept until a claim gets flagged, which is not the ideal moment to learn about it.

The full annotated list of dual-purpose items, along with guidance on how to address them in plan design, is included in the eligibility standards guide.

What makes an item "dual-purpose"?

A dual-purpose item is one that can serve both wellness and medical purposes depending on how and why it's used. Massage therapy is a common example. For most employees, it's a recovery and well-being service. For an employee following a physician-prescribed treatment plan, it takes on a medical dimension.

Some of the most frequently encountered dual-purpose items include:

• Massage therapy and massage equipment
• Home fitness equipment (treadmills, connected fitness bikes)
• Weight management aids and programs
• Personal training sessions
• Aromatherapy treatments

The item itself isn't inherently medical or wellness-only. The context in which it's used, and whether the plan requires documentation to establish that context, is what determines eligibility.

How plan design affects what's eligible

Here's where a single decision has wide-ranging consequences: whether the LSA plan requires a Letter of Medical Necessity (LMN) before reimbursing dual-purpose items.

If the plan does not require an LMN, dual-purpose items are generally eligible. If the plan does require one, those same items only qualify when the employee provides medical documentation.

Employers who don't address this in plan design often end up with inconsistent claims outcomes that frustrate employees and add pressure to the HR team. Making this design decision intentionally and documenting it clearly in the plan is far easier than correcting it after enrollment is complete.

Global considerations for fitness & wellness eligibility

For companies managing global employee benefits programs, the eligibility picture gets more layered. In principle, all fitness & wellness spending account categories can be included in a global LSA program. In practice, regional considerations shape what's appropriate, what's tax-advantaged, and what employees in different markets actually value.

A gym membership that's universally appealing in one country may not translate to another, where employees prefer outdoor fitness or have access to employer-subsidized national health programs. Tax treatment of wellness benefits also varies by country, which affects how plan documents should be structured for each geography.

Gallup's research on employee well-being and engagement consistently shows that employees who feel supported by their employer in their personal wellness are more engaged and more likely to stay. For global companies, building a fitness & wellness account that actually resonates in each region is part of what makes that support feel real.

Why Forma simplifies fitness & wellness spending account management

Eligibility decisions are only the starting line. After a program is designed, it still needs to be administered, communicated, updated, and measured. Most HR teams don't have the bandwidth to manage all of that manually, especially when eligibility rules are nuanced and employees are submitting claims across multiple categories and geographies.

Forma centralizes the entire fitness & wellness benefit into one platform, from program configuration to claims processing to analytics. Benefits teams can see utilization in real time, adjust eligibility at any time, and rely on Forma's member support team to handle employee questions rather than fielding them internally. 

Compliance is built into the workflow, which means the dual-purpose item handling and US/global distinctions that create so much friction in manual programs are managed systematically.

The fitness & wellness spending account eligibility standards guide is a strong first step toward building a well-structured program. Schedule a demo today to see how Forma puts that structure into practice for companies at every stage of their benefits journey.

Frequently asked questions about fitness & wellness spending account eligibility

What expenses are typically eligible under a fitness & wellness spending account?

Eligible expenses generally fall into five categories: fitness activities (gym memberships, classes, athletic events), digital health tools (fitness and meditation apps), fitness accessories (wearables, athletic clothing), fitness equipment (home gym gear, trackers), and well-being services (massage therapy, spa treatments). The specific items eligible under any given account depend entirely on how the employer has configured the plan.

Can a fitness & wellness spending account cover medical expenses?

For US-based companies, no. Reimbursing medical expenses through an LSA-based wellness account can inadvertently create a group health plan under ACA regulations, which carries compliance requirements that most LSA structures cannot meet. Common medical expenses like copays, over-the-counter medications, and physical exams should be excluded from fitness & wellness spending accounts for US employees.

What are dual-purpose items and how do employers handle them?

Dual-purpose items are expenses that can serve either wellness or medical purposes depending on context. Examples include massage therapy, home fitness equipment, and weight management aids. Whether these items are eligible under a fitness & wellness spending account depends on whether the plan requires a Letter of Medical Necessity before reimbursement. Employers who don't address this in plan design typically end up with inconsistent claims outcomes.

Is a fitness & wellness spending account taxable?

Yes. Funds received through a fitness & wellness spending account are treated as taxable income for employees. This differs from pre-tax accounts like HSAs and FSAs, which offer tax advantages tied to qualified medical expenses. Employers should communicate this distinction clearly during open enrollment to set the right expectations and avoid confusion at tax time.

How much do companies typically fund fitness & wellness accounts?

The median annual funding per employee across Forma's customer base is $600, with an average budget utilization rate of 73%. Funding amounts vary based on company size, industry, and how the fitness & wellness account fits within the broader benefits package. Some companies pair it with a separate nutrition account, which carries a median annual funding of around $260 with 85% utilization.

Can a fitness & wellness spending account be used globally?

Yes. All fitness & wellness spending account categories can, in principle, be included in a global LSA program. Regional considerations apply, including local tax treatment, vendor availability, and employee preferences that vary by market. Companies managing global programs should review regional compliance requirements to ensure their eligibility structure is appropriate for each country where employees are located.

How is a fitness & wellness spending account different from an FSA or HSA?

An FSA and HSA are pre-tax accounts governed by IRS rules, limited to specific qualified medical expenses, and subject to annual contribution limits set by the IRS. A fitness & wellness spending account is employer-funded, employer-defined, and built for wellness expenses that go beyond the IRS-eligible medical expense list. It offers more flexibility in what employees can spend on, but funds are treated as taxable income rather than pre-tax dollars.

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This article is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.

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