Health card premiums tax has been the major concern of employers with the issuance of RMC 50-2018.
Based on said RMC, the health card premiums paid by the employer for all employees, whether rank-and-file or managerial/supervisory, under a group insurance should be included as part of other benefits of these employees which are subject to the PhP90,000.00 threshold. However, individual premiums (not part of group insurance) paid for selected employees holding managerial or supervisory functions are considered “fringe benefits” subject to fringe benefits tax. (A7, RMC 50-2018)
This BIR memorandum circular however came under heavy fire considering that health card premiums used to be not subject to tax. There are various BIR rulings stating that health insurance premium or coverage is not subject to tax.
In general, Section 2.33 (B) (10) of Revenue Regulations (RR) No. 3-98 the cost of premiums borne by the employer for the group insurance of employees was treated as tax exempt.
Basically, from the perspective of employer, it is a concern whether it is exempted from both compensation and fringe benefits taxes.
Under RR No. 3-98 the cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following:
(a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended) or under the Government Service Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of any other existing law; and
(b) the cost of premiums borne by the employer for the group insurance of his employees.
On March 17, 2003, the BIR issued DA-081-03 in responding to the letter of Lacson & Lacson Insurance Brokers, Inc. asking for clarification of the following:
(1) If non-insured in medical benefits provided by an employer to its employees and their dependents are subject to tax; and
(2) If an employer decides to buy medical insurance for its employees and their dependents, are the insurance premiums subject to tax.
The BIR held that where the employer decides to buy medical insurance for its employees, whether rank and file or supervisory, and their dependents, the insurance premiums paid by the employer shall be excluded from gross income and therefore not subject to withholding tax.
In relation thereto, BIR Ruling DA-469-07 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.
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Further, the same is not subject to withholding tax on compensation. This is based on BIR Ruling DA-139-05 which provides that the premium payments made by the corporate employers for the benefit of its eligible employees (managerial and rank-and-file) are not subject to withholding tax on compensation nor to fringe benefits tax.
With all these interpretations in the background, taxing the premium per RMC 50-2018 seems to go against the grain. Thus, BIR issued recently, RMC 96-2018 deleting the provision in RMC 50-2018 taxing the premium on health insurance.
The BIR explained the issuance of RMC 50-2018 in stating that it was issued to address the frequently asked questions during the various briefings held relative to the TRAIN Law. However, according to the BIR, there were queries raised which were not part of said law. It was prompted 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 revenue regulations.
In essence, the BIR deletes from RMC 50-2018 the implementation of the pertinent provisions therein which were not affected by the provisions of the TRAIN Law.