14 December, 2018
Earlier this year, Revenue Memorandum Circular (RMC) No. 50-2018 included premiums on group health insurance among the items of taxable income of employees. However, RMC No. 96-2018 dated 26 November 2018 clarified the provisions of RMC 50-2018, and clearly revoked the inclusion of group health insurance premiums among the items of taxable income.
Recent Developments
RMC 50-2018 dated 11 May 2018 was issued in order to clarify certain provisions of Revenue Regulations (RR) Nos. 8-2018 and 11-2018 implementing the income tax provisions of Republic Act (RA) No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act.
Under RMC No. 50-2018, premiums on health cards paid for by an employer under a group insurance policy was included in the employees’ P90,000 tax-exempt basket of 13th month pay and other benefits. Under current tax law and regulations, any amount in excess of the P90,000 tax-exempt basket of 13th month pay and other benefits, is subject to tax. This applies to both rank and file and managerial employees.
Hence, RMC 50-2018 effectively taxes group health insurance premiums. Moreover, RMC 50-2018 states that individual premiums (not part of group insurance) paid for selected employees holding managerial or supervisory functions are subject to Fringe Benefits Tax (FBT).
This was a clear departure from the Bureau of Internal Revenue's (BIR) previous position that such premiums are exempt from income tax and consequently, from withholding tax on compensation and fringe benefits tax.
Many industry groups questioned RMC No. 50-2018 on this issue. In a new memorandum circular, RMC No. 96-2018, the BIR reversed the effect of RMC 50-2018. The new RMC explains that some provisions of RMC No. 50-2018 were not part of the recent tax reform package. Hence, a tax on group health insurance premiums (Q7/A7) cannot be imposed.
A Tax Advisory dated 28 November 2018 was issued by the BIR, advising taxpayers that the tax treatment of group health insurance premiums shall remain the same as that before the issuance of RMC No. 50-2018.
Actions to Consider
Taxpayers should take note of this new development. Employers who withheld tax on the premiums of its employees on the basis of RMC 50-2018 should make the necessary adjustments when it annualizes the withholding tax returns for its employees in December.
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