January 12, 2024
Explore benefit-in-kind (BIK) on health insurance in Ireland. Understand how it works, its tax implications, an employer’s BIK responsibilities, and more.
Article written by
Employer-funded health insurance in Ireland is a taxable benefit-in-kind (BIK) for employees.
How does BIK on health insurance work?
What are its tax implications for employers and employees?
We’ll answer these questions (and more) in this article.
A BIK is a non-cash benefit with monetary value that employees receive in addition to their salary. In Ireland, when employers provide health insurance to their employees, the government considers it a benefit-in-kind.
What does health insurance offered as BIK typically cover?
BIK health insurance covers a range of medical services, similar to any standard health insurance scheme. This can include general practitioner visits, hospital stays, surgical procedures, and sometimes even dental and optical care.
The extent of coverage depends on the specific policy chosen by the employer.
That said, health insurance as a BIK has unique financial and tax implications for employees and employers.
Primarily, it adds to an employee's taxable income (we’ll explain this with an example later - when we discuss the tax implications for employees who get health insurance as BIK).
So, how is BIK different from a direct salary increase?
While a direct salary increase and a benefit-in-kind like health insurance raise your taxable income, the former boosts your cash earnings.
In contrast, the latter adds value without increasing your cash pay.
Health insurance as a benefit-in-kind requires employers and employees to be mindful of its tax treatment. Let's explore how this impacts each party.
Here’s a quick guide on supporting employees with health insurance while meeting all legal obligations.
Irish employers must accurately determine the taxable Benefit-in-Kind (BIK) amount for health insurance premiums paid on behalf of an employee.
Why is this important?
Under Ireland's PAYE (Pay As You Earn) system, you're responsible for calculating and deducting the correct amount of income tax from your employees' salaries.
Regarding health insurance, the premium you pay is considered a taxable BIK. This means you need to add the entire gross premium of the policy to your employee's taxable income.
But there's more to it.
In addition to PAYE, your employees are also liable for Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) based on their gross pay, which includes the BIK premium payments.
So, to deduct tax, PRSI, and USC accurately, employers must calculate the BIK amount precisely. It ensures compliance with Irish tax regulations and helps maintain transparent and fair payroll practices.
You must consider the gross premium of the policy, which is the total cost, before any medical insurance tax relief.
Suppose the annual gross premium of a health insurance policy is €2,000. This is the amount you must use for BIK valuation.
Then, add the premium amount (and any other BIKs you offer) to employee pay. The gross pay is used for tax, PRSI, and USC calculations.
After determining the BIK value of health insurance, you must report it accurately.
Companies typically integrate this step into their payroll system.
Why is BIK reporting important?
Timely and precise reporting of BIK is not just a matter of financial accuracy; it's a legal requirement.
It ensures that both employers and employees are up-to-date with their tax obligations.
The Irish Revenue Commissioners are stringent about compliance with tax regulations.
Any discrepancies or delays in reporting can lead to complications, potentially resulting in penalties or audits.
This is the step where you pay the premium to the insurer.
You might think you need to pay the whole premium amount to the insurer, but here's the twist — you actually pay a reduced amount.
The payments for health insurance from authorised Irish insurance companies qualify for tax relief. The insurer would have already worked in the tax relief at source (TRS), which is set at 20% of the total premium in the tax year 2023-24.
In essence, you only pay the net or tax-relieved premium to the insurer.
The employee can then claim the medical insurance relief when filing their returns (we’ll cover this later - under tax implications for employees). So you must return the TRS amount to Revenue.
Let’s break it down:
You pay the insurer the discounted premium and send the TRS amount to Revenue. Your employees will then claim that TRS amount later on.
If the gross premium for an employee's health insurance is €1,000, the TRS would be €200 (20% of €1,000).
You'd pay €800 to the insurance company and then remit the €200 TRS to Revenue. Your employee can claim this €200 back when tax time rolls around.
It's a win-win — you comply with tax laws, and your Irish employees get their due relief.
Here’s what you need to know about returning the value of Medical Insurance Relief to Revenue:
Where to Pay: The amount of Medical Insurance Relief should be paid to the TRS section of the Collector-General's Division.
How to Pay:
If you're registered for Corporation Tax (CT), include it in your preliminary tax payment under your CT1 form.
For those registered for Income Tax (IT), it goes as part of your preliminary tax payment, detailed in your Form 11.
If you're not registered for either Income Tax or CT or are a non-resident, you can pay via cheque or bank draft.
Tax Deduction: You're eligible to claim a deduction for the gross value of the policy for Case I or Case II purposes.
In Ireland, Case I and Case II refer to tax deduction categories for businesses. Case I applies to trading income (like sales revenue), while Case II covers non-trading income (like investment income).
Employers must maintain detailed records related to employee health insurance.
This practice not only aids in transparency but also ensures you’re ready for any audits or inquiries from the tax authorities.
Here's what you should keep track of:
Premium Payments: Record the exact amounts paid as net premiums to the insurance company and the TRS amounts remitted to Revenue.
BIK Amounts: Keep a clear record of how you've calculated the BIK value for each employee's health insurance. Remember, this should reflect the gross value of the insurance premium.
Employee Details: Maintain records of which employees are covered under the policy and any changes that occur during the year.
Policy Information: Document details of the health insurance policies, including coverage terms and any changes or updates.
As an employer, when you offer health insurance as a BIK, there are some key cost considerations to keep in mind. They are:
No Tax Relief at Source (TRS)
Unlike employees, employers do not receive TRS on the medical insurance premiums they pay for their staff.
Remember, you pay the net premium after TRS but have to submit the relief to Revenue.
Deductible Business Expense
You can treat the premiums you pay as BIK as a deductible business expense.
This can reduce your taxable income, potentially lowering overall tax liability.
Employer’s PRSI Liability
Despite the deductibility, you're still liable to pay PRSI on the BIK value.
This is an additional cost to factor into your budgeting for employee benefits.
Clearly, offering health insurance as BIK adds to your administrative and cost overheads, piling up a ton of paperwork.
All this can send your payroll system into a frenzy.
But don't worry. Kota is here to help!
Kota is a cutting-edge digital platform that helps employers streamline employee benefits management and optimise costs.
The app gives you access to compliant health insurance plans from Irish Life Heath. This means you can provide health insurance for your people all in one place, without all the administrative overhead.
Here are some reasons why you’ll love Kota:
Centralised Information: Kota provides a unified platform where all necessary information for accountants, payroll, or finance teams is readily available. This makes managing health insurance offerings more streamlined.
Payroll Reporting Snapshot: Under the billing tab, employers can access a payroll reporting snapshot. This feature identifies charges for all employees in any particular month, simplifying the process of tracking and reporting health insurance costs.
Downloadable Reports: You can easily download detailed reports in CSV format, which includes all the essential information for your payroll processing. This feature is convenient for managing your BIK calculations and reporting efficiently.
Employee Identification: The platform makes it easy to identify staff with details like employee name and ID, ensuring that health insurance contributions are accurately matched to each employee.
Remember, if you’re getting private health insurance from your employer, you’re liable to pay tax on the entire gross premium.
This means the full cost of the policy, before any tax relief, gets added to your taxable income.
Suppose your employer pays a €1,200 annual premium for your health insurance. This premium counts as a benefit-in-kind (BIK) and adds to your taxable income.
Essentially, for tax purposes, it's like you're earning an extra €1,200.
Your employer would have already accounted for this BIK amount in your gross income (which is used for deducting your taxes.)
The good news?
You can claim the medical insurance relief from Revenue as annual tax credits (aka Employee Tax Credit) at 20% of the gross premium.
Follow these steps to claim your tax credits:
Sign in to Revenue's myAccount to make a claim at https://www.ros.ie/myaccount-web.
Click on 'Manage your tax' in PAYE Services.
Select 'Claim tax credits' and choose 'Medical Insurance Relief' under 'Health'.
The Irish government taxes employees as a percentage of their gross income (salary + all taxable benefits like employer-funded health insurance), applying a 20% rate up to a standard rate cut-off point and a 40% higher rate above that threshold. There are plans in the 2024 budget to increase the standard rate cut-off by €2,000.
Reporting: Your employer usually reports BIK values in your PAYE earnings to Revenue. But always double-check your payslips and annual P60 or Employment Detail Summary for accuracy.
Compliance with Deadlines: Stay vigilant about tax filing deadlines to successfully claim your tax credits and steer clear of late submission penalties.
Record Keeping: Hold onto documents related to your health insurance policy and medical expenses. They're handy for claiming TRS or if Revenue has any questions.
Here are three frequently asked questions to enhance your understanding of BIK on health insurance:
For BIK health insurance in Ireland, the tax relief (Medical Insurance Relief) is set at 20% of the gross premium.
However, there are caps on the maximum relief you can claim based on whether it’s an adult or child policy.
For adult policies:
The relief is capped at the lower of two amounts: either 20% of the policy's cost or 20% of a €1,000 limit, resulting in a maximum tax credit of €200.
For child policies (the beneficiary must be below 21):
The relief available is similarly capped, being the lesser of 20% of the policy cost or 20% of a €500 limit, leading to a maximum credit of €100.
Suppose an employee pays part of their health insurance premium directly. In that case, they would receive TRS in the form of a discounted premium for their part of the contribution.
However, the tax relief they can claim on employer contributions is pro-rated. This means they can claim relief at 20% of employer contributions, not the entire premium amount.
For example, if the employer pays 50% of the premium, the employee can only claim tax relief on that 50%.
In Ireland, BIKs extend beyond health insurance to include:
Use of company assets, etc.
The employer must report these taxable benefits as part of an employee's income, similar to health insurance premiums.
Offering private healthcare insurance demonstrates your commitment to employee well-being and can significantly lift team morale.
However, as a taxable benefit-in-kind in Ireland, it also creates significant administrative and cost overheads for employers.
Thankfully, you can simplify the process through Kota.
This digital benefits platform can save you time and money on manual administrative work. With Kota at your back, you can avoid getting lost in the weeds of managing health insurance policies, and do more of what matters to you and your team.
Article written by
👋🏻 Hi I'm Aine, Head of Customer Success at Kota. Whether you're a Kota customer, a Kota user, or you're just browsing, I hope to help educate and empower those who want to know more about owning their own benefits, and building financial autonomy 📚
Want to see Kota in action?
Schedule a 30-minute demo
Built for teams of today, like yours.
Zero commitments – get started for free