Do you pay your employees’ medical insurance annually? Whether you are paying a percentage or full health insurance cost of your employees, they are liable for tax on the amount you pay. When you pay medical insurance premiums for your employees, it is considered a benefit in kind. For most employees, the benefit in kind (BIK) is a small cost compared to the benefit and peace of mind of having their health insurance covered.
What is a benefit in kind (BIK)?
If your employees’ total income plus the benefits is more than €1,905 a year, you are eligible to pay taxes on the benefits. Salary from past employment is not counted towards the €1,905 limit. If your employee worked for multiple businesses in the same parent company, the combined income from the jobs counts towards the €1,905 limit. If you offer benefits in kind to an employee’s spouse or civil partner and family members, they must pay tax on it.
Typical benefits in kind associated with medical insurance
Medical insurance is a common benefit in kind provided by employers to pay for health insurance for their employees. The insurance typically covers doctor visits, preventative care, medications, hospital stays and other medical services. When the employer pays medical insurance premiums on behalf of employees, they pay net premiums to the insurance company and the Tax Relief at Source (TRS) to the Revenue Commission. An employee is expected to pay tax on the gross value of the insurance.
Some employers provide in-house medical plans and corporate GP services, which employees contribute to and make claims. When you don’t contribute to the plan on behalf of employees, it is not considered a benefit in kind. However, if you contribute to the in-house medical plan for your employees, you need to seek approval from the Revenue Commission to confirm there is no BIK. If you pay a retainer to a general practitioner, any benefit received by employees is not treated as a taxable benefit in kind.
In companies where medical check-ups are mandatory, employers can pay for one medical check-up for each employee. This is not a taxable BIK, and there is no yearly limit to medical check-ups if the employer needs to conduct the check-ups for work.
Health costs incurred in the provision of health care to employees or directors fall under the statutory BIK exemption effective from January 2021.
How medical insurance tax works?
When employers pay all or a proportion of health insurance premiums as an employee benefit, employees pay taxes on the benefit, as earlier mentioned. Since the employer pays the deducted taxes directly to Revenue, the total annual premiums and taxes paid on the employees’ health policy are included in the payslip for income tax purposes. For employees who pay their health insurance privately, the taxes are automatically deducted from their premiums.
How is tax relief applied to health insurance?
Employees benefiting from health insurance paid by employers are entitled to up to €200 in tax relief annually. Claiming tax relief is often time-consuming and can be complex, but employees could be entitled to up to €800 in tax credits if they have not claimed tax relief for the past four years.
When an employer pays the insurance premiums for medical insurance, the insurance provider applies medical insurance relief on the gross value of the policy. This deducts taxes from the charges paid by the employer, and the company will remit the deducted taxes to Revenue. The employee is also entitled to tax relief, but they need to submit a claim manually to get €200 annually in tax credits. The amount of tax relief employees can claim depends on employer contributions.
Entirely employer-funded policies
When an employer pays medical insurance in full, employees can claim 20% of the annual costs as tax relief. However, the maximum tax relief is €200 a year. That means if the cost of your annual premium paid by your employer is €1,200, you can claim 20% of the cost, which is €240, but due to the cap, the tax relief is €200 a year. If your annual premium is €800, you claim €160 in tax relief.
If your children’s medical insurance premiums are paid in full by your company, you can also claim an annual tax relief of up to €100 annually.
Partially employer-funded policies
In some companies, the employer makes a partial contribution to medical insurance premiums, and the employee covers the balance. You can still claim tax relief on your policy. The tax relief you receive from Revenue is calculated as 20% of the employer’s contribution instead of the total policy premiums. For instance, if the employer contributes 50% of the annual premiums as benefits for medical insurance worth €1,200, you can claim €120 per year. The tax relief is calculated on the €600 from your employer, and you won’t claim any relief from your contribution since it is deducted as Tax Relief at Source (TRS). The maximum tax relief you can claim in partial employer-funded policies is €200.
Retrospective tax relief
Are you benefiting from company-funded medical insurance? Did you know you can get retrospective tax relief for up to four years? If you have used company-funded health insurance for years, you can claim tax relief even when you no longer work for the company.
Retrospective tax relief claims are calculated as complete calendar years instead of the exact four years from the date your claim was submitted. For instance, if you submit a claim for tax relief before 31st December 2023, you are eligible for tax relief for 2022, 2021, 2020 and 2019. However, if you wait until January 2024, you will not claim retrospective tax relief for 2019. Aside from the four-year limit for claiming relief, employees can also get relief on specific services paid for by the employer. These may include doctor consultation fees, transport by ambulance, treatment from a psychologist and maternity care. Drugs, medicines, physiotherapy and diagnostic procedures cannot be claimed as tax relief unless they are prescribed by a doctor.
Personally-funded policies
Medical insurance is usually a benefit in kind, and some employers do not offer contributions towards your health insurance premiums. If you choose to take your health insurance policy that covers your family, the employer is not obligated to make contributions.
For personally-funded policies, taxes are deducted automatically as TRS. That means you pay lower premiums compared to if your employer was paying your contribution. You are not eligible for tax relief credits. In most health insurance plans, if a company pays a premium of €1,000 annually, the individual contribution is €800 since the 20% relief is deducted automatically.
Even if you pay individual insurance premiums, you can still claim retrospective tax relief if you used company-funded health insurance in the past four years.
Conclusion
Many employers provide medical insurance as a benefit and contribute insurance premiums on behalf of their employees. However, most employees don’t realise that Pay Related Social Insurance is chargeable on the gross premiums, and they are entitled to a tax relief at the end of the year. Employees are eligible for tax relief of €200 a year, and they can claim it as a tax credit. When medical insurance is paid directly by an employee, tax relief is granted by reducing the amount payable by 20%.