Taxation of Premiums On Group Health Insurance - The Manila Times

1/2/2020 Taxation of premiums on group health insurance – The Manila Times
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NATION REGIONS OPINION BUSINESS WORLD SPORTS LIFESTYLE ENTERTAINMENT
Taxation of premiums on group health insurance
THE SUNDAY TIMES
 November 29, 2018

By MORE
Euney Marie Mata-Perez
Medical and hospitalization costs in the Philippines are not cheap and could
be daunting for ordinary employees. Thus, to cover these costs, many
employers obtain group health insurance plans or “health cards” for their
employees or contribute to health and hospitalization benefit plans. The
EUNEY MARIE MATA-
PEREZ issue arises on whether premium costs paid for such group health insurance
would be subject to the fringe benefits tax (FBT) or withholding/income
tax on compensation income.
In May this year, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum
Circular No. 50-2018 (RMC 50-2018) which declares, among others, that premiums on
health cards paid by employers for all employees, whether rank and file or
managerial/supervisory, for group insurance shall be included as part of other employees’
benefits which are subject to the P90,000 income tax exemption threshold. The BIR now
effectively considers such premiums as compensation income that are exempt from income
tax (and, consequently, from withholding tax requirements) only if they fall within the
P90,000 exemption threshold.
The above pronouncement of RMC 50-2018 reversed the BIR’s previous position on the
matter and has caused confusion (and problems) to many.
RMC 50-2018 was supposed to further clarify the withholding tax provisions under previous
revenue regulations (Revenue Regulations Nos. 8-2018 and 11-2018) implementing TRAIN
1 (Republic Act No. 10963). However, TRAIN 1 did not amend the coverage of FBT or the
income tax provisions of the Tax Code on health insurance premiums. It merely increased the
FBT rates from 32 percent to 35 percent and amended the personal income tax PIT rates,
among others.
Section 33(B)(10) of the Tax Code expressly provides that life or health insurance premiums
and other non-life insurance premiums or similar amounts in excess of what the laws allow
are subject to FBT. However, if such premiums are paid for group insurance of employees,
they are expressly exempt from and not subject to FBT. This exclusion was introduced by
Revenue Regulations No. 3-98 (RR 3-98), the regulations implementing Section 33 of the
https://www.manilatimes.net/2018/11/29/business/columnists-business/taxation-of-premiums-on-group-health-insurance/475065/475065/ 1/8
Tax Code relative to the FBT provisions introduced by Republic Act No. 8424 (the Tax Code
of 1997).
THE SUNDAY TIMES
The exemption of premiums for group insurance from FBT, however, did not mean
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exemption from any other income tax imposed under the Tax Code. A “fringe benefit” may
still form part of the employee’s gross compensation income which is subject to income or
withholding tax, as clarified by RR 3-98.
Thus, the exemption from FBT of group insurance premiums does not necessarily mean they
are exempt from income tax on compensation income. However, in several BIR rulings, the
earliest of which was issued in 2003, the BIR affirmed that group insurance premiums costs
are not also subject to income tax/withholding tax on compensation (BIR Ruling DA-081-03;
BIR Ruling DA-374-08). The BIR then held that such premiums are exempt from both FBT
and income tax.
It is thus clear that RMC 50-2018 reversed all these previous rulings, in the guise of
implementing TRAIN 1 amendments, and revised the income tax treatment on premiums
paid on group health insurance. This reversal is controversial and has caused problems to
employers for several reasons:
As mentioned, TRAIN 1 did not amend the scope or coverage of income or benefits subject
to FBT under Section 33 of the Tax Code. It merely increased the FBT rate from 32 percent
to 35 percent and amended the PIT rates, among others.
TRAIN 1 did not also amend what constitutes “compensation income” for income tax
purposes; neither did it amend any income tax provision on insurance premiums.
The P90,000 exemption seeks to cover “other benefits” which generally include the 13th
month pay, Christmas bonuses and productivity incentives, as provided under Section 32(B)
(7)(e) of the Tax Code, as amended. Insurance premiums on group health insurance are not
akin to bonuses or incentive pays.
Insurance health premiums are paid to health card or health insurance companies, not to the
employees, and are at amounts agreed between the employers and such companies. To
subject them to withholding tax on compensation would mean the employers will have to
“gross up” the payments and pay additional cash, as withholding tax, to the government. At
the end of the year, employers will charge the tax to the employees, thereby, reducing the
employee’s final net or take-home pay. In effect, employers who look out for the health
concerns of their employees, as well as their employees, are being penalized.
The amounts paid for group insurance premiums may not be known to the employee or even
directly attributable to him or her. Thus, there may difficulty in allocating the amount of
THE SUNDAY
premiums TIMES
to employees concerned.
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There is also no doubt the premiums for group insurance are paid for the convenience of the
employer. Health insurance coverage may help ensure employees’ good health, a major
factor for productivity, and would insulate employers from the financial burden of providing
financial aid to employees for their medical and hospital bills. Thus, enrolling employees in
group health insurance plans and providing them with health cards certainly benefit the
employer’s business.
We understand that the BIR is revisiting its position on this matter and may possibly issue a
reversal. Employers and the employees would most welcome such a reversal. However, since
many employers are now doing their year-end annualization and adjustments of withholding
taxes, we hope that a reversal will be issued at the soonest possible time.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez,

Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. She is the
newly-elected President of the Asia-Oceana Tax Consultants’ Association. She acknowledges
the contribution of Atty. Aziza Hannah A. Bacay to this article. This article is for general
information only and is not a substitute for professional advice where the facts and
circumstances warrant. If you have any question or comment regarding this article, you may
email the author at info@mtfcounsel.com or visit MTF Counsel’s website at
www.mtfcounsel.com
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Home  Business  Business Columns  Taxation of premiums on group health insurance

 November 29, 2018

Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez,

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