You may be due a refund on private health insurance, even if your employer pays it
The number of people who neglect to claim tax reliefs they are entitled to still surprises me.
The two excuses I hear all the time are (a) they don’t know what they are entitled to and (b) those that do, believe the refund or tax credit they would receive is too small, and would not merit the time and hassle they would have to go through when submitting a return.
Tax relief on health insurance premiums is a good example - particularly if the premium is fully or partly paid by an employer.
It is estimated that up to 300,000 employees who are on company-paid private health schemes do not claim tax relief on their health insurance cover. The majority say they don’t because they thought their employer was making the claim on their behalf, or because it was being paid in full by their employer, they were not entitled to get anything back.
As a result, millions of Euro is going unclaimed each year.
When an individual takes out a health insurance policy, tax relief the individual is entitled to is granted at source which means the amount paid to the insurance provider is reduced by the tax relief available.
This relief is granted at 20% with the qualifying amount set at a maximum of €1,000 or your annual premium, whichever is the lower.
Example 1: Gross Premium - €1,500; Tax relief - (€1,000 x 20%) €200; Net Premium - €1,300
In this scenario 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) is not granted. One of those situations 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, but in these circumstances it is necessary for the employee to calculate the amount they are entitled to and make a claim directly themselves to their local Revenue office.
Let me show you some examples of this where the employer pays some or all of the premium, and how much you may be entitled to receive back.
Example 2 – Single Individual – Employer pays 100% of the premium
Gross Premium paid by employer - €2,000; Tax relief granted to employer - €1,000 x 20% - €200; Net payment made by employer - €1,800; Employer payment to Collector General - €200
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.
Example 3 – Two adults at €1,200 each and two children at €300 each – employer pays 100% of premiums:
Gross Premium paid by employer - €3,000; Tax relief granted to employer - €2,600 x 20% - €520; Net payment made by employer - €2,480; Employer payment to Collector General - €520
In this instance the employer is charged BIK on €3,000 and is entitled to a tax credit of €520 in their tax credit certificate.
Example 4 - Two adults at €1,200 each and two children at €300 each – employer pays 75% of premiums
Gross Premium: €3,000; Portion of premium paid by employer (75%) - €2,250; Tax relief granted to employer - €2,600 x 75% x 20% - €390; Net payment made by employer - €1,860; Employer payment to Collector General - €390; Portion of premium paid by employee - €750; Tax relief granted to employee - €2,600 x 25% x 20% - €130
In this instance, the employee has received tax relief at source of €130 in respect of the premiums paid by them but they have not benefited from the TRS arising on the portion of the premium paid by their employer and is therefore entitled to a tax credit of €390 in their tax credit certificate.
How do you make a claim? It’s easy, you can either 1. Phone your regional PAYE LoCall service or 2. Complete and submit a claim for medical insurance and age related tax credit to your local Revenue office. If you search online, type IT5, it will bring you to this form.
If you haven’t made a claim in recent years’ there is a four-year time limit so any claim has to be made within four years after the end of the tax year to which the claim relates to.
As can be seen in the examples, the refund you could be entitled to, if you haven’t made any claim, could be substantial.
This is money you are entitled to, and I believe making a claim for whatever amount it is, big or small is, another form of saving and a cash injection, particularly at this time of the year, would be welcome to us all.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie