BIK(Health Insurance paid by employer) and pension tax relief

T

turing

Registered User
Messages
13
Hi all,

I am a PAYE employee in an occupational pension scheme.

Recently my employer has started providing me with Health Insurance. The amount paid by the employer each month is 117.60 euro and this has started appearing on my monthly payslip under the heading 'BIK (Health Insurance)'.

I have a couple of questions:
1) Can I send 20% (based on my age - I am 36yo) of this 117.60 euro BIK amount to pension scheme each month, and then claim tax relief at 40% (marginal rate)?

2) There is also a mention on Revenue website of 20% tax relief for employer-paid Health Insurance up to a cap of 200 euro. If answer to 1) above is 'Yes', then am I also eligible to claim this 200 euro tax relief separately?


Any thoughts appreciated. I'm finding this very confusing.

Turing
 
As per Clubman's link, the Revenue website mentions 20% tax relief (capped at 200 euro) for Health Insurance.

However there are other threads on here (such as this one) that seem to imply that BIK is pensionable (i.e. I can send my age related percentage (i.e. 20% as a 36yo) of the BIK to the pension scheme and claim back income tax at the marginal rate (40%) - in the same way as one could do so for a bonus or any overtime pay.

So I'm not sure how these 2 'tax reliefs' interact. Are you eligible for one or the other (or both) :rolleyes:
 
You shiuld be charged BIK based on the gross premium, as if you got no tax at source as you would if buying individually, and if so then you should be able to claim tax credit, if the BIK is only on the net amount then in your tax return you should increase it to gross premium pay tax on that higher amount are get 20% credit up to €200.

Not sure if you can use BIK amounts for your % pension contributions, maybe you can as that is your taxable income whilst not a real cash amount.
 
thanks cloughy, my '2 cents' is that folks are eligible for both reliefs.

I had another look this morning and there are numerous AAM threads were it mentions that BIK is pensionable e.g.
Thread1
Thread2
Thread3

But I think it's likely in addition you can claim the (up to 200 euro) tax relief.

So lets take 2 examples for comparison...

1) 1000 euro gross pay (from bonus):
Tax/PRSI/USC is deducted and remitted to Revenue from this 1000 euro gross pay.

You then purchase private health insurance for 1000 euro. The insurer applies TRS (tax relief at source) so the net cost to you is 800 euro.


2) 1000 euro 'gross pay' (from BIK):
Tax/PRSI/USC is deducted and remitted to Revenue from this 1000 euro 'gross pay' (i.e. Revenue considers the BIK as equivalent to gross pay and so it Tax/PRSI/USCs it accordingly).

But in this example you now have the benefit of health insurance costing 1000 euro (that would have cost you 1000 euro of 'grossed up' pay had you bought it privately). So you are eligible to claim the (up to 200 euro) tax relief that wasn't dealt with by TRS.


Summary
So as far as I can see both these examples (1000 euro gross pay vs 1000 euro BIK) are equivalent in terms of the tax treatment. I.e. both the examples of 'gross pay' are pensionable and eligible for (up to 200 euro) tax relief when used to purchase health insurance.


I'm interested to get any further feedback/opinion
 
I think the question I'd whether the notional income BIK can be used to calculate the aged related % uou can contribute to a pension.

If your taxed on the gross Health Insurance you can claim the 200 max tax credit,
 
1)BIK & Pension age related Tax relief:

My understanding is, the total taxable pay(which includes any notional BIK), is what the age related pension limit, is based on.

Its irrelevant, whether the BIK is for Health Insurance, Company Car BIK, or any other BIK.

It is the total taxable pay(which includes all BIK Notional pay), on which the age related Employee Pension contribution max, is calculated on.

2) Health Insurance BIK:
You are taxed under PAYE, on the amount your Employer paid, known as the “gross amount”, (+USC & PRSI)and as this scenario(e.g. employer paying for it), means, you did not receive Tax relief at source(TRS), you have to claim tax relief yourself, at 20% of the amounts paid by the employer, which are capped at €1000 per adult on the employer policy, per year, and €500 per child per year.

So, where an employer pays for a health insurance policy, covering 2 adults(for at least €1,000 per adult & 2 children(for at least €500
per child), this would mean an additional tax credit claimable by the Employee of € 600.

If the employer pays for the Employee adult only, a €200 maximum tax credit is claimable.

In the scenario, where an employer pays for adult Employee children, then then up to €200 is claimable for that person.


You can claim this in the current year, by way of adding the tax credits on your Revenue My Account.
Alternatively, you can claim it for a prior year on a tax return, and if you have forgotten to claim it, you can go back 4 years, and have those tax years reviewed.

If it is the case where the adult/child amounts paid by the employer, are under €1,000/€500, then the amount claimable, is restricted, to the amount paid by the employer. This is more common for young children, which can be under €500 per annum, dependant on the coverage.
Likewise, if the amounts paid by your employer, exceed the annual caps, the claimable amount, is restricted to those annual caps.

Medical insurance premiums

This page details tax relief on medical insurance premiums
www.revenue.ie www.revenue.ie

Medical Insurance TRS, is a bit of an anomaly, so it is not uncommon, to find it confusing.
 
fayf said:
My understanding is, the total taxable pay(which includes any notional BIK), is what the age related pension limit, is based on.
Click to expand...
Is it not the USCable pay that the age related percentage is based on ?
The taxable pay is already reduced by any pensions already paid.
 
For EE pension relief, on fully compliant Payrolls, this is an overview of how they work.

step 1) calculate the taxable ytd pay, before EE Pension or EE AVC
step 2) calculate the age related EE pension max ytd at the time of Payroll run
step 3) allow EE pension/avc tax relief, up to that age related max ytd in step 2)
step 4) dissallow PAYE relief, on any EE Pension/AVC, which exceeds, the age related max ytd

This is how most compliant payrolls work, allthough there are apparently some, out there, where the age related EE pension limit control feature, is not hard coded, eg not on the system, or, if it is present, it can be manually disabled.

For payrolls who do not follow the above, there is a risk of 1)Revenue non compliance, and 2)also a risk an Employee receives pension relief above the age related limit, which could potentially mean, the Employee ends up with a PAYE liability at the year end.

Revenue can find employers liable, where it is discovered that Employer is not applying the correct process.

A fully compliant payroll, will never allow excessive pension tax relief, that an EE is not entitled to, so it will be date sensitive.

If say an Employee goes up, an age related pension band, during the tax year, fully compliant system, will not apply the revised and higher age related threshold, until their birthday date, then it will backdate, and process a PAYE refund if applicable.
 
fayf said:
1)BIK & Pension age related Tax relief:

My understanding is, the total taxable pay(which includes any notional BIK), is what the age related pension limit, is based on.

Its irrelevant, whether the BIK is for Health Insurance, Company Car BIK, or any other BIK.

It is the total taxable pay(which includes all BIK Notional pay), on which the age related Employee Pension contribution max, is calculated on.

2) Health Insurance BIK:
You are taxed under PAYE, on the amount your Employer paid, known as the “gross amount”, (+USC & PRSI)and as this scenario(e.g. employer paying for it), means, you did not receive Tax relief at source(TRS), you have to claim tax relief yourself, at 20% of the amounts paid by the employer, which are capped at €1000 per adult on the employer policy, per year, and €500 per child per year.

So, where an employer pays for a health insurance policy, covering 2 adults(for at least €1,000 per adult & 2 children(for at least €500
per child), this would mean an additional tax credit claimable by the Employee of € 600.

If the employer pays for the Employee adult only, a €200 maximum tax credit is claimable.

In the scenario, where an employer pays for adult Employee children, then then up to €200 is claimable for that person.


You can claim this in the current year, by way of adding the tax credits on your Revenue My Account.
Alternatively, you can claim it for a prior year on a tax return, and if you have forgotten to claim it, you can go back 4 years, and have those tax years reviewed.

If it is the case where the adult/child amounts paid by the employer, are under €1,000/€500, then the amount claimable, is restricted, to the amount paid by the employer. This is more common for young children, which can be under €500 per annum, dependant on the coverage.
Likewise, if the amounts paid by your employer, exceed the annual caps, the claimable amount, is restricted to those annual caps.

Medical insurance premiums

This page details tax relief on medical insurance premiums
www.revenue.ie www.revenue.ie

Medical Insurance TRS, is a bit of an anomaly, so it is not uncommon, to find it confusing.
Click to expand...
Thanks fayf
 
a
S class said:
This is presumably the USCable pay.
Click to expand...
In the vast majority of instances yes, that is correct, but, leaving aside Cycle To Work & Travel Passes, which are both tax free and usc free, there could be, future circumstances, (allthough unlikely), where a payroll payment, is exempt from USC.

Up to 2017 for example, illness benefit received by an employee, was processed on Payroll, this was taxable, but was not subject to USC, so the Gross Pay, before pension, was higher than the usc’able pay.

The separate calculation of USC’able pay, and taxable pay, allows Revenue flexibility, to accomadate any potential future changes.
 
You must log in or register to reply here.
Back
Top