Somewhere in Trimble Inc.‘s 2025 proxy statement, buried in a footnote under “All Other Compensation,” sit two numbers: $4,641 and $7,740. That’s what the company paid in 2024 for two of its named executive officers to get an annual physical exam. Dorman Products’ proxy, filed the same year, discloses $2,527 for its CEO’s physical. Neither company reports these amounts as taxable wages to the executives who received them.
That’s not an oversight. It’s the result of a specific, narrow IRS test — and most articles about “executive health benefits” never actually walk through it. They either treat the tax question as an afterthought inside a broader HR compliance post, or they skip it entirely and focus on which hospital has the nicest waiting room. This article is about the test itself: what makes an employer-paid executive physical tax-free, what quietly disqualifies it, and what the rest of the tax code says about it once you’re actually enrolled.
If you’re an executive receiving this benefit, or you work in HR or finance and you’re the one deciding whether to offer it, the short version is this: the tax-free treatment is real, it’s common, and it depends on getting a handful of specific details right.
Key takeaways
- Employer-paid physicals are generally excluded from an employee’s taxable income as “medical care” under IRC §105(b) — but a program offered only to executives normally counts as discriminatory under §105(h), which would make it taxable to exactly the people it’s meant to benefit.
- A specific carve-out, Treasury Regulation §1.105-11(g), lets a discriminatory (executives-only) diagnostic screening program stay tax-free anyway, as long as it’s limited to routine exams at a genuine medical facility and doesn’t drift into treating a known condition.
- Real companies disclose real numbers: Trimble Inc. paid $4,641 and $7,740 for two executives’ physicals in 2024; Dorman Products paid $2,527 for its CEO’s — both fully documented in public SEC filings.
- The benefit doesn’t jeopardize HSA eligibility, per IRS Notice 2004-23, which explicitly classifies routine physicals as pre-deductible preventive care.
- Being tax-free doesn’t mean the tests inside the exam are well-chosen — a 2019 JAMA study found the opposite is often true at even the most prestigious hospitals.
The Two-Question Test, Up Front
Before the detail, here’s the actual test the IRS applies, compressed into two questions:
- Does the program discriminate in favor of highly compensated employees? If it’s offered only to executives, the answer is almost always yes, which normally triggers IRC §105(h) and makes the benefit taxable to the highly compensated employees who receive it.
- If yes — does it qualify for the medical diagnostic procedure exception? This is Treasury Regulation §1.105-11(g). If the program meets all three of its conditions (below), it’s excused from the §105(h) nondiscrimination penalty and stays tax-free, discrimination and all.
Most legitimate executive physical programs are built specifically to clear question two. That’s the whole mechanism. Everything below is what “clearing it” actually requires, in plain language, with the exact regulatory citations so you (or your benefits counsel) can verify it independently.
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What “Medical Care” Means Under the Tax Code
Start with the baseline rule, because it’s more generous than most people assume. Under IRC §105(b), amounts an employer pays or reimburses for an employee’s medical care are excluded from that employee’s gross income. IRC §213(d) defines “medical care” broadly to include “the diagnosis, cure, mitigation, treatment, or prevention of disease” — and a routine physical exam falls squarely inside that definition, since it exists to catch disease before it causes symptoms.
So on its own, §105(b) would make an employer-paid physical tax-free for anyone. The complication shows up one section later.
The Nondiscrimination Trap
IRC §105(h) exists to stop employers from using tax-free medical benefits as a way to quietly pay executives more than everyone else without calling it salary. It applies to self-insured health plans (plans where the employer, not an insurance carrier, bears the financial risk), and it denies the §105(b) tax exclusion when the plan discriminates in favor of “highly compensated individuals” — a defined term under §105(h)(5) that generally covers the five highest-paid officers, anyone owning more than 10% of company stock, and the top 25% of earners overall.
An “executive physical” program is, by design, offered only to a small group of senior people. That’s about as textbook a case of discriminatory eligibility as exists. Read in isolation, §105(h) would seem to say the benefit is fully taxable to exactly the executives it’s meant to help — reported as W-2 wages, subject to withholding, the works.
That’s not what happens in practice, for most well-run programs. There’s an exception, and it’s the part of this topic almost nothing online explains clearly.
The Exception That Actually Saves It
Treasury Regulation §1.105-11(g) creates a specific carve-out: a medical diagnostic procedure can discriminate in favor of highly compensated employees without losing its tax-free status under §105(h) — but only if it satisfies three conditions simultaneously:
- The exams happen at a facility that provides only medical or ancillary services. A genuine clinic or hospital-affiliated program qualifies. A health fair set up in a conference room, or a mobile testing van parked at company headquarters, generally does not.
- The scope is limited to routine medical examinations, blood tests, X-rays, and similar diagnostic tests. This is meant to describe screening — looking for something that isn’t known to be there yet.
- Nothing in the program treats, cures, or tests for a known illness, disability, physical injury, complaint, or specific symptom. The moment a program starts addressing something the executive already knows is wrong, it has crossed from “diagnostic procedure” into “treatment,” and the exception no longer applies.
| Condition | What qualifies | What disqualifies |
|---|---|---|
| Location | Dedicated medical/clinical facility | Company office, conference room, on-site health fair |
| Scope | Routine exams, standard labs, imaging, screening panels | Tests specifically ordered for a known condition |
| Purpose | Diagnostic — looking for the unknown | Treatment — managing the already-known |
| Extras | None, or strictly diagnostic add-ons | Fitness coaching, nutrition counseling, spa services, massage |
Get all three right, and the IRS treats the whole benefit as excluded from wages — even though, by definition, only a handful of highly paid people received it. Get any one wrong, and the exception fails, which typically means the value of the entire program becomes taxable wages for the participating executives, not just the disqualifying piece.
What Actually Trips Programs Up
The theory is straightforward. In practice, three mistakes account for most of the real-world failures:
- Running it on-site instead of at a real medical facility. It’s tempting to bring the screening to the executives rather than sending them out, especially for a busy leadership team. But condition one is specific about where this happens, and a temporary setup inside company offices is a common way programs unintentionally disqualify themselves.
- Letting the exam quietly become symptom-driven. If an executive mentions a specific concern and the physician orders a targeted test in response, that individual test has moved from screening into diagnosis-of-a-known-complaint — which is exactly what condition three excludes. This is easy to miss because it feels like good, responsive medicine, not a compliance problem.
- Padding the package with general wellness services. Nutrition consults, personal training sessions, and similar add-ons are popular because they round out the experience, but they sit outside the “diagnostic procedure” definition entirely and can jeopardize the tax treatment of the whole bundle if they’re included as part of the same offering.
None of these require bad intent. They’re the kind of thing that happens when a program is designed around what feels comprehensive and reassuring, rather than around the specific regulatory test it needs to pass.
The Second Tax Layer Nobody Mentions: Payroll Tax
Income tax exclusion under §105(b)/(h) is one layer. There’s a separate one: employment tax, meaning Social Security and Medicare withholding (FICA) and federal unemployment tax (FUTA). These are governed by IRC §3121(a) and §3401(a), and they have their own exclusions for amounts paid in connection with sickness and medical care.
The practical effect is that a program correctly structured to qualify for the §1.105-11(g) diagnostic procedure exception generally clears both hurdles at once — it’s excluded from taxable wages and from employment tax withholding and reporting. But if the program fails the exception (say, because of on-site testing or symptom-driven add-ons), the exposure isn’t limited to income tax. The value can also become subject to FICA and FUTA, meaning both the employer and the executive owe payroll tax on it, plus corrected W-2 reporting after the fact. That’s a meaningfully bigger cleanup than a single missed income-tax line.
Does This Touch Your HSA?
If you’re on a high-deductible health plan and contributing to an HSA, there’s a specific worry worth addressing directly: does an employer covering a physical before your deductible is met blow up your HSA eligibility?
It doesn’t. IRS Notice 2004-23 lays out a “preventive care” safe harbor for HDHPs — a list of services a high-deductible plan can cover before the deductible without disqualifying HSA contributions, even though most other care has to wait until the deductible is satisfied. That list explicitly includes “periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.” An executive physical, structured as routine diagnostic screening, fits comfortably inside that definition.
Real Companies, Real Numbers
Most of this topic lives in abstraction — IRS code sections, regulatory tests, hypotheticals. Here’s what it looks like when a real company does it and has to say so publicly.
Under Item 402 of Regulation S-K, if a named executive officer’s total perquisites for the year reach $10,000, every individual perk has to be identified by type in the company’s proxy statement, regardless of its own dollar value — which is why “physical examination” shows up by name in filings even when the specific figure is well under that threshold.
Trimble Inc.’s 2025 proxy statement discloses that in late 2022, its People & Compensation Committee approved an external vendor to conduct “a comprehensive annual executive physical exam for certain executives, including each of our Named Executive Officers,” describing it as an “optional, company-paid” benefit. In 2024, the company paid $4,641 and $7,740 on behalf of two named executives for this benefit.
Dorman Products’ 2025 proxy statement lists “Physical Examinations” as its own column inside the All Other Compensation table, disclosing $2,527 paid for CEO Kevin M. Olsen’s physical in fiscal 2024, alongside similar itemized entries for 401(k) contributions and insurance premiums.
Neither company reports these figures as part of taxable salary. Both are publicly searchable on SEC EDGAR, which means this isn’t a claim you have to take on faith — it’s a filing you can pull up yourself.
Why More Companies Are Adding This Benefit Right Now
This isn’t a legacy perk quietly fading out. Goldman Sachs Ayco’s 2025 Executive Benefits Survey found that executive physical exams are the second most common executive-only benefit, offered at a majority of surveyed companies — trailing only financial counseling, and ahead of nearly everything else companies offer their senior leadership. The same survey found that 24% of companies added new executive benefits in 2025, three times the historical average of 8% in a typical year.
That growth is happening against a backdrop of employer health costs that keep climbing: Mercer’s 2026 projections put total health benefit cost per employee above $18,500, a jump described as the steepest increase in 15 years. Against that number, a physical exam costing a few thousand dollars for a handful of senior leaders is a rounding error — which is part of why it’s an easy benefit for a compensation committee to approve, and part of why the tax mechanics matter more than the sticker price.
Before You Design or Accept This Benefit, Ask a Different Question
Everything above answers “will this be taxed?” It doesn’t answer “is this a good idea?” — and those are genuinely separate questions.
A 2019 JAMA analysis of 46 executive physical packages at 29 top-ranked US hospitals — covered in full in our comparison of executive health programs — found these programs frequently include tests USPSTF rates as having insufficient evidence, like routine ECGs and hearing exams in low-risk people, while none of the 46 packages studied included low-dose CT lung cancer screening, the single highest-evidence cancer screening test that exists for eligible smokers. A 2008 New England Journal of Medicine piece raised a similar structural concern more than a decade earlier.
The tax-free status of an executive physical says nothing about whether the specific tests inside it are the right ones for the person receiving them. A program can be perfectly compliant with §1.105-11(g) and still be built around low-value testing. Those are two independent checks, and it’s worth running both — the tax test covers whether the paperwork is right, not whether the medicine is.
A Practical Checklist
If you’re an executive receiving this benefit, ask your HR or benefits team:
- Is this program structured under the diagnostic procedure exception, or is it a straightforward taxable perk reported on my W-2? (Both are legal — you just want to know which one you’re getting, since it changes what shows up in your paycheck and your tax filing.)
- Where does the exam actually take place — a genuine clinical facility, or somewhere on our company’s premises?
- Does the package include anything beyond diagnostic testing, like fitness or nutrition services?
If you’re designing or reviewing the program, confirm with benefits counsel:
- The exams occur at a facility providing only medical or ancillary services — not company premises.
- The scope stays limited to routine exams, standard labs, imaging, and screening — with no tests added because of a specific executive’s known condition or complaint.
- Wellness extras (fitness, nutrition, recreation) are excluded from the same benefit, or offered and taxed separately.
- The plan document explicitly limits the program’s scope in writing, since the IRS looks at how the program is actually described and administered, not just how it’s marketed internally.
The Bottom Line
An employer-paid executive physical is usually tax-free, but “usually” is doing real work in that sentence. The mechanism is specific: §105(b) makes medical care tax-free in general, §105(h) would normally disqualify an executives-only program as discriminatory, and Treasury Regulation §1.105-11(g) rescues it — provided the program stays strictly diagnostic, happens at a real medical facility, and doesn’t drift into treating something already known. Real public companies structure real programs this way and disclose real dollar figures doing it, from Trimble’s $4,641 and $7,740 to Dorman’s $2,527. None of that tells you whether the tests inside the exam are the right ones for your age, sex, and risk profile — that’s a separate, evidence-based question, and it deserves its own answer before you or your company writes the check.
Frequently Asked Questions
Is an executive physical taxable income to the employee?
Usually no, but it isn’t automatic. Employer-paid medical care is excluded from an employee’s taxable income under IRC §105(b), and a routine physical qualifies as “medical care” under §213(d). The complication is that a benefit offered only to executives normally counts as discriminatory under §105(h), which would make it taxable to highly compensated employees specifically — unless the program fits the narrow “medical diagnostic procedure” exception in Treasury Regulation §1.105-11(g). Most well-run executive physical programs are structured to fit that exception, which is why the benefit typically comes through tax-free.
What is the medical diagnostic procedure exception?
It’s a carve-out in Treasury Regulation §1.105-11(g) that lets an employer offer diagnostic health screening to a discriminatory group (like just its executives) without triggering taxable income under §105(h)’s nondiscrimination rule — as long as three conditions are met: the exams happen at a facility that provides only medical or ancillary services, they’re limited to routine exams, blood tests, X-rays, and similar diagnostic tests, and they don’t include treatment, cure, or testing tied to a known illness, disability, or specific complaint.
What can disqualify an executive physical program from being tax-free?
Three common mistakes: running the exams at a company office or a temporary on-site setup instead of a genuine medical facility, folding in tests specifically ordered because of an executive’s known condition or symptom (which turns it into treatment, not screening), and bundling in general wellness services like fitness training, nutrition counseling, or spa-style add-ons. Any of these can push the whole benefit into taxable territory for the executives who receive it.
Does an executive physical affect my HSA eligibility?
No. IRS Notice 2004-23 explicitly lists “periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals” as preventive care. A high-deductible health plan can cover this before the deductible is met without disqualifying HSA contributions, even though most other care can’t be covered pre-deductible under an HSA-qualified plan.
Do companies actually disclose what they pay for executive physicals?
Yes, in SEC proxy statements. Under Item 402 of Regulation S-K, any named executive officer whose total perquisites reach $10,000 must have every perk identified by type, and Trimble Inc.‘s 2025 proxy discloses $4,641 and $7,740 paid for two executives’ physicals in 2024, while Dorman Products’ 2025 proxy discloses $2,527 for its CEO. These filings are public and searchable on SEC EDGAR.
How common is the executive physical benefit?
It’s widespread and growing. Goldman Sachs Ayco’s 2025 Executive Benefits Survey found executive physical exams are the second most common executive-only benefit, offered at a majority of surveyed companies, trailing only financial counseling. The same survey found 24% of companies added new executive benefits in 2025, three times the historical average of 8% — evidence of momentum, not stagnation.
Is a tax-free executive physical automatically a good use of money?
No, and that’s a separate question entirely. A 2019 JAMA study of 46 executive physical packages at top-ranked US hospitals found they frequently included tests USPSTF rates as low-value or unproven, while none included low-dose CT lung screening, the single highest-evidence cancer test that exists. A benefit can be perfectly tax-compliant and still be built around the wrong tests. We cover that evidence gap in detail in our full comparison of executive health programs.
Can a small or mid-sized company offer this benefit, or is it only for large public companies?
Any employer can offer it — public company proxy disclosures are just the easiest place to see real dollar figures, because they’re legally required to publish them. Private and smaller companies offer the same benefit without any public filing requirement, typically structured as a standalone plan or through a Health Reimbursement Arrangement (HRA) limited to eligible executives, following the same §105(h) and Treas. Reg. §1.105-11(g) rules described above.
This article is for general educational and informational purposes only. It is not medical, tax, or legal advice, and it is not a substitute for guidance from a licensed physician, tax professional, or employee benefits attorney who knows your specific situation. Tax rules are fact-specific and change over time — always confirm current requirements with qualified counsel before designing or relying on an executive health benefit program. See our Methodology page for how we research and grade the evidence behind claims like these.
Sources
- 26 U.S.C. §105(b), §105(h), §213(d) — Internal Revenue Code, exclusion for employer-provided medical care and nondiscrimination rules for self-insured plans.
- 26 CFR §1.105-11(g) — Treasury Regulation, medical diagnostic procedure exception to §105(h) nondiscrimination testing.
- 26 U.S.C. §3121(a), §3401(a) — Internal Revenue Code, FICA and income tax withholding definitions and exclusions.
- Internal Revenue Service. Notice 2004-23 — Preventive care safe harbor for high-deductible health plans.
- Ogletree Deakins. Determining the Taxability of Employer-Provided Executive Health Examination Programs, 2025.
- Newfront. Executive Health Benefits.
- U.S. Securities and Exchange Commission. 17 CFR §229.402 — Item 402 (Executive Compensation), Regulation S-K.
- Trimble Inc. Form DEF 14A, 2025 Proxy Statement. U.S. Securities and Exchange Commission, EDGAR.
- Dorman Products, Inc. Form DEF 14A, 2025 Proxy Statement. U.S. Securities and Exchange Commission, EDGAR.
- Goldman Sachs Ayco. 2025 Executive Benefits Survey Results.
- Mercer. US employers and workers will face affordability crunch as health insurance cost is expected to exceed $18,500 per employee in 2026.
- Korenstein D, Mamoor M, Bach PB. Preventive Services Offered in Executive Physicals at Top-Ranked Hospitals. JAMA, 2019;322(11):1101–1103.
- Rank B. Executive Physicals — Bad Medicine on Three Counts. New England Journal of Medicine, 2008;359(2):104–105.
- ScanGlean. 7 Best Executive Health Programs in the US (2026).