Benefit In Kind, health insurance query

T

tko1

Registered User
Messages
4
Hi tax experts.....

I am considering moving from VHI to Glo health care as they provide free health cover for under 3s. I have 2 children, both under 3, so it seems like a good deal. The net premium with VHI (company plan plus) is €1045.80 for me and €369.68 for each of the boys, giving a total of €1785.16.
With Glo the net premium for the better plan is €1057.30 for all three of us. So at this point it looks like a no brainer to change.. however, I think the fact that the company pay VHI directly as BIK and the tax implications of moving make it less appealing...

Option 1 stay with VHI:
My employer pays only for my health cover currently with VHI (net premium €1045.80) and I pay out of my net income the remaining 2 net premiums for the boys. (total cost to me €739.36)

Option 2 go with Glo:
My company will pay me the gross premium of the company plan plus scheme (for me only) if I want to choose my own provider. This is €1307.25 and will be added to my gross income.

(This is the bit I am not sure of.....)
After I pay income tax, PRSI, and USC on this, at 52% I think it will only leave me with €627.48 to put toward the health insurance.
€1057.30(net premium with glo)-€627.48(money in net income toward health insurance)=€429.82
So I have to pay €429.82 out of net income for the cover with glo.

So after considering the tax, I work out I am only saving €309.54 if I move to glo.

Can anyone tell me have I missed something here? It seems like I am at a real disadvantage to changing health provider because I'll be paying 52% of it if it's added to my gross income... and only getting 20% extra in pay than if I was receiving health cover as benefit in kind.

Is there something I am missing here?

Thanks in advance,

Tara
 
What you are missing is the fact that your gross benefit in kind (the 1,307 gross premium) is currently being taxed and so, while you are getting health insurance you are also paying tax on that - so it is reducing the net cash into your hands.

In effect, you pay the €627 tax regardless of how your health insurance is dealt with and so you will have an additional €1,307 into your hand to buy your Glo health policy.
 
Thanks for the reply, Nige.

You are right, I can see 1/12 of the gross premium as an addition on my payslip. I must confess I have never really understood how all this works...

Can I check I have this right... I pay tax, prsi and usc on that payment, totalling 52%. The revenue give me tax credits for 20%. Does that mean I am out of pocket for getting health insurance paid for by my employer? I thought it was supposed to be a perk that didn't cost me anything...

Or am I missing something else here?

Also, I remember people contacting the revenue for a refund associated with their employer paid VHI. What is this for? I can't find any link on revenue's website about it, but probably because I don't know what term to search for. Is this part of what I'm missing?

Thanks again
 
I think the part you're missing out on is that you can't have a valuable perk tax free. The logical conclusion of that would be that your employer would pay you a nominal salary and then pay your mortgage as a perk, your car running costs as a perk, your groceries as a perk, etc... and no-one would ever actually owe / pay any income tax!
 
You are out of pocket compared with the 'having no health insurance' position but if you would buy health insurance anyway, then you are net better off.

Historically, VHI premiums were allowed at the taxpayers marginal rate so it was indeed provided at no cost to the employee but once the tax credit was reduced (probably more than 10 years ago) to the standard rate, a BIK arose for higher-rate taxpayers.
 
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