BIR: Health Card Premiums No Longer Taxable

The Bureau of Internal Revenue (BIR) will no longer be taxing health card premiums.

Last May, the BIR released Revenue Memorandum Circular No. 50-2018, which clarified the income and withholding tax provisions of Revenue Regulations 8-2018 and 11-2018 under the Tax Reform For Acceleration and Inclusion Act (TRAIN).

Tax-Free Health Card Premiums

According to the circular, “premium on health cards paid by the employer for all employees, whether rank and file or managerial/supervisory, under a group insurance shall be included as part of other benefits of these employees which are subject to the P90,000 threshold.”

In a nutshell, it states that health insurance premiums, even if considered as a benefit awarded by employers to their employees, were still included in the P90,000 tax-free limit. This means that the premium will be added up along with other forms of bonuses that you get (including your 13th-month pay) and, if the total exceeds P90,000, it will subject to income tax.

With the TRAIN Law, total employee bonuses which exceed the P90,000 ceiling are subject to a 35% fringe benefits tax. This is 3% higher than the pre-TRAIN fringe benefits tax, which was 32%.

However, BIR issued a new circular clarifying all issues regarding its legal interpretation toward the taxability of the premiums paid by employers for their employees’ health cards and confirmed the deletion of Item No.7 of the RMC 50-2018, which pertains to the taxability of health card premiums.

The senator has spoken

Last November 25, Senator Juan Eduardo “Sonny” Angara, Chairman of the Senate Ways and Means Committee, requested modifications to RMC 50-2018 explaining that reversed previous BIR regulations which stated that premiums on health cards are tax-free.

He added that health insurance premiums are not and should not be embodied in the computation of the employees’ taxable bonuses and benefits and that injunction of taxes on HMO premiums are not in any way mentioned in the Republic Act (RA) 10963, more commonly known as the Tax Reform and Acceleration for Inclusion Law (TRAIN).

“Kahit isa-isahin natin ang mga pahina ng RA 10963, hindi po natin makikita doon na dapat buwisan ang mga HMO o health card benefits. Kaya’t nananawagan tayo sa BIR na klaruhin na agad ang isyu na ito at patuloy na ipatupad ang tax-free health benefits.” Angara said.

According to Angara, the circular that the agency released has created confusion as to what is the appropriate analysis of the premiums is on health cards.

“Sa laki ng gastusin sa pagpapagamot at pagpapaospital, hindi makatao na bubuwisan pa ang mga benepisyo na nakatutulong nang malaki para pangalagaan ang kalusugan ng bawat pamilyang Pilipino,” he added.

(Read: List of Mandatory Employee Benefits In The Philippines)

Tax in, tax out

Internal Revenue Commissioner Caesar Dulay issued Revenue Memorandum Circular (RMC) 96-2018, which aims to amend RMC 50-2018. The new RMComits item No. 7, which imposes a tax on health card premiums, and Item No. 34 involving tax withholding on director fees.

Dulay explained that there is a need to analyze and remove the items because they are both not part of TRAIN.

“In the implementation of the subject law (TRAIN), RMC No. 50 -2018 was issued to address the frequently asked questions during the various briefings held relative to the said law. There were, however, further queries that were often raised but which were not part of the TRAIN Law,” said Dulay in a report in The Philippine Star.

“Thus, there is a need to go over those questions/answers from the same RMC since it was issued specifically to clarify the provisions of the TRAIN Law and its subsequent implementing rules and regulations.”

Other sources: Business World, Philippine Star