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06 Oct 2022

Making Cents: Are you entitled to a 20% tax refund?

Making Cents: Are you entitled to a 20% tax refund?

It’s estimated that about 400,000 people who are members of a company paid private health scheme, do not reclaim their tax relief on their health insurance cover

IT'S JUST one price increase after another. Last week we saw another energy provider announce a hike of 33.5% on their electricity prices and 47.11% on their gas rates.
It’s non-stop.
The cost of electricity alone, for a home with an average usage, has increased by c. €903 in just 11 months. And it will probably get worse before it gets better.
And people are doing their best to find these additional monies but there’s only a certain amount they can cut back by, and at some stage they’ll reach that floor where there’s nothing more they’ll be able to find.
When that happens or ideally before it does, they should be exploring other options and some of those could be trying to earn more, lowering their mortgage repayment by maybe switching to a fixed rate, selling unwanted items, anything really that can generate additional monies.
And another one of those areas people like me often mention is claiming back tax reliefs. The problem with this suggestion is that we can be very vague about it because the amount you may be refunded can be unknown. It will depend on the individual and their particular circumstances.
And when people see this vagueness, they’re not very motivated to do anything which is a shame.
Which is why, I want to refer to one type of tax relief where the amount you can claim is very clear and known.
And that’s the amount you can claim back on health insurance premiums.
It’s estimated that about 400,000 people who are members of a company paid private health scheme, do not reclaim their tax relief on their health insurance cover.
And I’m going to tell you, how you go about claiming this money in a moment.
But before I do, I think it always helps if we connect the reason why we’re claiming back tax relief to a specific purpose, because if you have none, you might not see the need to do anything, because you’re just saving money for saving sake. But when you say something like, I’m claiming back tax relief to pay for the increases in our upcoming electricity bills, it makes your reason why more tangible and the effort you have to make feel less difficult.
Okay, when you personally take out a health insurance policy, tax relief is granted to the individual at source, which means the amount paid to an insurance provider has already taken tax relief into account.
The tax relief available is granted at 20% of your annual premium, whichever is the lower with the qualifying amount set at a maximum of €1,000 per adult and €500 per child.
So, if for example the gross cost of cover is €1,500, tax relief is applied and granted at €200 (€1,000 x 20%. If, the annual cost of cover is €850, the tax relief available is €170 (€850 x 20%)
When you arrange cover privately, there is no need to contact Revenue as your medical insurance provider will implement the necessary changes to the amount of tax relief due.
However, there are certain situations where tax relief at source (TRS) does not apply, and that is when an employer pays the health insurance premiums on behalf on an employee and his or her dependents.
In these circumstances a benefit in kind liability arises – PAYE, PRSI and USC are deducted from the earnings of the employee on the value of the benefit that is being provided and paid for.

Because the employee has not benefited from the TRS arising on the premium paid by their employer, they are still entitled to the tax relief. However in these circumstances its’ necessary for the employee to calculate the amount they are entitled to and make a claim directly themselves.
Let me show you some examples of this where the employer pays all or some of the premium, and how much you may be entitled to.

Single Individual – Employer pays 100% of the premium
If the cost in this instance was €2,000 for the individual, tax relief is granted to the employer at 20%, which means they get back €200 (€1,000 x 20%).
The employer in this instance will calculate the PAYE, PRSI and USC due from the employee on the full €2,000 paid, and in turn pays the €200 they receive back in tax relief to the Collector General.
As the employee has not benefited from any tax relief and is charged BIK on the €2,000 payment, he or she is entitled to a tax credit of €200 in his/her tax credit certificate.

Two adults and two children – employer pays 100% of premiums.
If the cost in this instance was €4,000 , where each adult cost €1,600 and each child €400, tax relief is granted to the employer at 20%, which means they get back €560 (€1,000 x 20% x 2 + €400 x 20% x 2).
In this instance the employee is charged BIK on the €3,000 and is entitled to a tax credit of €560 in their tax credit certificate.

Two adults and two children – employer pays 75% of premium.
Using the same costings and details in the previous example, tax relief is granted to the employer on €2,800 at 20%, which means they get back €420.
The employee will have received €140 tax relief which will have been applied at source in respect of the 25% portion they paid. But because they have not benefited from the relief arising on the portion of the premium paid by their employer, they are entitled to a tax credit of €420.

How do you make a claim?
Log into Revenue's myAccount service, and register with them if you haven’t done so already.
Once you’re logged in, and you are making a claim during this year, you need to:
n click the 'Manage your tax' link in PAYE Services
n select 'Claim tax credits'
n select 'Medical Insurance Relief' under the category 'Health'.
If you want to make a claim for 2019 and subsequent years, you must:
n sign into myAccount
n click on 'Review your tax' link in PAYE Services
n request 'Statement of Liability'
n click on 'Complete Income Tax Return'
n in the 'Tax Credits & Reliefs' page select 'Health' and 'Medical Insurance Relief'
n complete and submit the form.
If you want to make a claim for 2018, again sign in to myAccount, click on Review your tax 2018 to 2021 link in PAYE Service, select the income Tax Return for the year you wish to claim for i.e. 2018 and proceed as outlined above.
And when you are making a claim, you must provide the following information:
n the date the policy started
n who is covered on the policy and their ages
n a breakdown of the cost of the policy for each person
n the amount paid by your employer.

If you haven’t made a claim in recent years’, there is a 4-year time limit, so any claim has to be made within 4 years after the end of the tax year to which the claim relates to.
And as can be seen in the examples I’ve outlined, the amount you may be entitled to, could be substantial i.e. €800 so worth exploring further.


Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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