People are the most valuable asset of any company. Thus, it’s important that employees stay fit and healthy. One of the ways employers promote health at work is to offer medical benefits under a Health and Maintenance Organization (HMO) plan.

Usually, employers shoulder the amount of HMO premiums. At times they also pay for premiums of employee dependents.





In the past, the cost of premiums borne by the employer for the group insurance of employees was treated as tax exempt based on Section 2.33 (B) (10) of Revenue Regulations (RR) No. 3-98. Said RR treats the cost of life or health insurance and other non-life insurance premiums borne by the employer for employees as taxable fringe benefit except the following: (a) contributions of the employer for the benefit of the employees pursuant to provisions of existing law such as under the Social Security System, (RA 8282, as amended) or under the Government Service Insurance System (RA 8291) or similar contributions arising from provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of employees.

There was, however, a discussion in the recently issued Revenue Memorandum Circular (RMC) 50-2018—subsequent to the issuance of RR 8-2018 implementing the Income Tax Provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) Act—that clarifies the tax treatment of premiums on health cards borne by the employer for rank-and-file employees as well as those holding managerial or supervisory posts.

The RMC said premiums 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” which are subject to the P90,000 threshold. On the other hand, premiums on health cards paid by the employer for selected employees holding managerial or supervisory functions not part of a group insurance are considered fringe benefits subject to fringe benefits tax of 35 percent. This is still consistent with Section 2.33 (B) (10) of RR 3-98.

This would mean that the “other benefits” defined in Section 2.78.1(B)(11) of RR 2-98 shall now include the premiums on health cards paid by the employer under a group insurance along with the Christmas bonus, productivity incentives, loyalty award, gift in cash or in kind, and other benefits of similar nature actually received by officials and employees of both government and private offices.

Based on RMC provisions with regard to treatment of premiums on health cards, it appears that the premiums borne by the employer under group insurance would now form part of the taxable income of the employee after exhaustion of the P90,000 non-taxable bonus. Unfortunately, this would also mean that the benefit of the revised income tax rates for individuals will be wiped out.

For example, if your employer paid for the premium of your health card amounting to P20,000 and you receive a 13th-month pay equivalent to your monthly salary of P80,000, out of the P100,000, only up to P90,000 would be exempt from tax. The excess will now form part of your taxable income.

Since you are earning P80,000 monthly or P960,000 annually before bonuses, you would fall under the 25 percent bracket of the revised individual income tax rate implemented by the TRAIN Law. Although the imposed tax rate on your income was reduced from 32 percent to 25 percent, you would have an additional tax due arising from the P10,000 premium paid by your employer which was treated as tax exempt prior to the RMC.

This treatment would render the provision of health insurance to employees less affordable due to the income taxes payable on the premiums on health cards borne by the employer if not covered by the P90,000 threshold. This is especially true for minimum wage earners (MWE) who may not afford a health plan.

Further, the RMC specifically mentioned premiums on health cards. It’s not clear if the RMC applies only to group health insurance or if it also applies to group life or non-life insurance.

The BIR also has conflicting views on tax treatment of premiums on health cards paid by employers for employees’ dependents.

According to BIR Ruling DA-469-06, premiums paid by the employer for the dependents of its employees would form part of medical cash allowance to dependents of employees which should not exceed P750 per employee per semester or P125 per month itemized as “de minimis” benefits not subject to fringe benefits tax, income tax, or withholding tax on compensation.

But the TRAIN Law increased the threshold of medical cash allowance for employees’ dependents from P750 per employee per semester, or P125 per month, to P1,500 per employee per semester, or P250 per month, effective January 2018.

Contrary to this, the BIR issued BIR Ruling DA-469-07 which states that health insurance coverage of employees’ dependents are not subject to fringe benefits tax, income tax, and withholding tax on compensation pursuant to Section 2.33 (B) (10) of RR 3-98.

Thus, it remains unclear if the premiums borne by the employer for employee dependents would be covered by the medical cash allowance to dependents of employees itemized as “de minimis” benefits with excess subject to the P90,000 threshold or if the full amount of premiums should be exempt from tax.

Despite these issues, employers continue to promote health at work and offer health benefits to employees because they understand the importance of keeping their people in tip-top shape. As they say, healthy employees make a healthy business.

The author is a manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd.—a member firm of Deloitte Touche Tohmatsu Limited—comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.