BIK (Health Insurance) question

BizWiz66

Hi,

the company I work for provide Health Insurance benefits, the payment is of about 2.2k € / year that the company pays for (covering myself and my wife).
I then pay BIK on my payslip, total comes down to about 2.5k / year.

So I am not sure I am missing something, but what is the actual benefit of having the company paying for Health insurance when I end up paying more in BIK taxes than if I paid the insurance myself? Am i missing something?

Thank you for your advice

Lockedout2

Ok so say your salary is €30k and you have to pay the VHI out of after tax income you pay out €2k so your down €2k.

Say your salary is €30k and your employer pays your VHI you pay €1250 less tax credits of €400 so your down €850.

Your still better off. Are you claiming the tax credit?

BoatMad

strictly speaking you do not pay BIK on medical insurance

its as simple as this , you salary is say 30K and your medical insurance is 2k

your salary is therefore 32K and you pay normal tax on 32K , you do not pay BIK per se

You are allowed additional tax credit for medical insurance, which reduces the effect of the tax on that portion that is the medical insurance

BIK, is where a non money benefit is provided, health insurance payment is merely a salary component in reality

OldMrBrennan83

This post has been deleted.

Lockedout2

Patww79 wrote: »

I had health insurance in my last job that I left last year and it showed up as BIK on the payslip. I also lost more annually than the policy would have been to buy myself.

Are you saying that 50% tax on the net premium (80%) eg €800 regrossed at the standard rate €1,000 = Tax of €500 is more than the net premium of €800???

OldMrBrennan83

This post has been deleted.

BoatMad

Patww79 wrote: »

This post has been deleted.

if that is so , then there is an error in your payslip

relax carry on

Patww79 wrote: »

I've no idea, I just know the policy was 1750 a year and in the same year the deduction marked health BIK was 163 a month (~1900).

Your company effectively gave you 1900 euro worth of health insurance. Did you claim the health insurance credit you were entitled to?
Anyone who buys a health insurance premium privately gets the tax relief at source but anyone who's employer buys it for them has to claim the tax relief themselves.

BoatMad

relax carry on wrote: »

Your company effectively gave you 1900 euro worth of health insurance. Did you claim the health insurance credit you were entitled to?
Anyone who buys a health insurance premium privately gets the tax relief at source but anyone who's employer buys it for them has to claim the tax relief themselves.

huh, tax relief at source means an employer deducts the credit allowance and the employee does not claim any further allowance

the only time an employee would claim the allowance is when they pay it separately , i.e. its not deducted at source

The issue here is the nomenclature of the OPs payslip.

a " deduction " of 1900 is not correct on a health insurance premium of 1700 no matter what, as the OP at the very worst only pays the marginal tax rate one the Health contribution , hence the deduction is at least no greater then about 52%, thats before allowing for the tax credit

Lockedout2

Patww79 wrote: »

I've no idea, I just know the policy was 1750 a year and in the same year the deduction marked health BIK was 163 a month (~1900).

The way that BIK is included on a payslip in order to compute the tax, it is included in the gross pay column. The tax is then computed and the gross amount of the BIK is then deducted.

So it's added to the gross and then deducted. I'd imagine that you may have missed the duplication.

BoatMad

Lockedout2 wrote: »

The way that BIK is included on a payslip in order to compute the tax, it is included in the gross pay column. The tax is then computed and the gross amount of the BIK is then deducted.

So it's added to the gross and then deducted. I'd imagine that you may have missed the duplication.

of course , it would have to be inflated for USC, and PRSI, I forgot that

relax carry on

BoatMad wrote: »

huh, tax relief at source means an employer deducts the credit allowance and the employee does not claim any further allowance

the only time an employee would claim the allowance is when they pay it separately , i.e. its not deducted at source

Sorry you've lost me there. I buy a health insurance premium privately for 800 euro. This 800 euro is the net cost of the health insurance premium as it's already had its 20% tax relief granted at source.

The same premium costs an employer more (the gross cost). The bik is calculated at the gross cost meaning the employee must claim the tax relief themselves.

http://www.revenue.ie/en/tax/it/reliefs/medical-insurance.html

BoatMad

relax carry on wrote: »

Sorry you've lost me there. I buy a health insurance premium privately for 800 euro. This 800 euro is the net cost of the health insurance premium as it's already had its 20% tax relief granted at source.

The same premium costs an employer more (the gross cost). The bik is calculated at the gross cost meaning the employee must claim the tax relief themselves.

http://www.revenue.ie/en/tax/it/reliefs/medical-insurance.html

let me elaborate

there are two areas where tax relief must be claimed retrospectively

1. where the employee pays for such a plan themselves outside of any pay deduction
2. where the employer pays the full amount in addition to any stated salary ( this is not a " deduction ")


where an employee is " granted " a medical plan , paid in addition to his salary , then this paid amout is treated as nett salary and the gross amount will include PRSI and USC contributions on that amount. The employee will pay tax on that additional salary at their marginal rate of tax.

They will then claim the tax relief separately and annually by way of return and will be entitled to a refund of tax.

the normal case is that the medical plan is a " deduction " from salary , in that case , TRS applies and nothing further is done by the employee

Once the OP , would see that his salary is XXX plus a BIK of yyy ( which would include PRSI and USC markups ) . he then pays income tax on that total amount as if the full amount was salary he's receiving

He then makes an annual return to recover the tax allowance

At no stage is the 1900 euros actually 1900 euros, he is receiving the plan for nothing is fact

BizWiz66

Sorry for the delay, I was travelling and had limited access to the internet for the past couple of weeks.
Health Insurance is paid on top of my salary.
Basically the health insurance tax shows as "Notion Pay" on the payslip, and it is around 200€ / month (covering for me and my wife).
Cost of insurance paid by the company is 2,550€ gross, around 2,150€ net.
Tax bracket on income would be 40%.
Medical Insurance Relief (as checked on revenue.ie) is 2,000€. Not sure what this means though.

Does this look correct? Doesn't seem much of a "benefit"...

BoatMad

OK, you employer is paying your health insurance lock stock and barrel .. Thats the " benefit "


He is taking the annual value of the policy grossing it up and then you are paying tax on that amount , at your marginal rate

so without any further claims, the 2K a year health insurance is costing you around 800 euros

HOWEVER you personally can claim each year the tax relief, that 20% of maximum of 1000 per adult covered, since yours is in excess of that , you should each year claim 20% x 2000 euros, i.e. 400 euros

making the 2K medical insurance net cost to you of 400 euros approx

SO you are getting a 2K plan for a cost of 400 quid , and you think " Doesn't seem much of a "benefit". ``" LOL


you need to claim the allowance yourself with revenue , contact them and they will explain all ( ring them , they are very approachable )

BizWiz66

BoatMad wrote: »

OK, you employer is paying your health insurance lock stock and barrel .. Thats the " benefit "


He is taking the annual value of the policy grossing it up and then you are paying tax on that amount , at your marginal rate

so without any further claims, the 2K a year health insurance is costing you around 800 euros

HOWEVER you personally can claim each year the tax relief, that 20% of maximum of 1000 per adult covered, since yours is in excess of that , you should each year claim 20% x 2000 euros, i.e. 400 euros

making the 2K medical insurance net cost to you of 400 euros approx

SO you are getting a 2K plan for a cost of 400 quid , and you think " Doesn't seem much of a "benefit". ``" LOL


you need to claim the allowance yourself with revenue , contact them and they will explain all ( ring them , they are very approachable )

Thanks for the explanation, I am still a bit confused though. When I look on Revenue.ie this shows as "Claimed, not editable" (cant post image) beside the Health Insurance voice.

How would this be shown in the payslip? All I see is the "Notion Pay" which is around 200€/month (2.4k year roughly). Is there a different request I need to submit?

CIARAN_BOYLE

BizWiz66 wrote: »

Sorry for the delay, I was travelling and had limited access to the internet for the past couple of weeks.
Health Insurance is paid on top of my salary.
Basically the health insurance tax shows as "Notion Pay" on the payslip, and it is around 200€ / month (covering for me and my wife).
Cost of insurance paid by the company is 2,550€ gross, around 2,150€ net.
Tax bracket on income would be 40%.
Medical Insurance Relief (as checked on revenue.ie) is 2,000€. Not sure what this means though.

Does this look correct? Doesn't seem much of a "benefit"...

Well the other option would be to add enough a month to you salary that you could pay the health insurance and keep your net otherwise the same. Hint, it works out the same.

barneystinson

CIARAN_BOYLE wrote: »

Well the other option would be to add enough a month to you salary that you could pay the health insurance and keep your net otherwise the same. Hint, it works out the same.

From the employer's perspective it certainly doesn't! In order to leave an employee with an additional 2k out of which to pay for health insurance, the employer would have to pay an additional 4K in salary, deduct 2k in taxes and pay the 2k net.

By paying for it directly, the outlay by the employer is much less (assuming a high rate taxpayer).

CIARAN_BOYLE

barneystinson wrote: »

From the employer's perspective it certainly doesn't! In order to leave an employee with an additional 2k out of which to pay for health insurance, the employer would have to pay an additional 4K in salary, deduct 2k in taxes and pay the 2k net.

By paying for it directly, the outlay by the employer is much less (assuming a high rate taxpayer).

I meant keep the net otherwise the same as it is now.

dobsdave

Similar question, excuse the hijack please.

Company was paying my health insurance last few years cost gross approx 1400.
I was getting the correct relief from revenue ie 1400*20%
April15 my company put my wife on the policy also.
My monthly bik doubled as expected but the relief has stayed the same for 2016.
Do I have to tell them or is it down to the company, or maybe I'm not entitled as its not for me, i.e. a benefit for my wife?

Thanks

BoatMad

barneystinson wrote: »

From the employer's perspective it certainly doesn't! In order to leave an employee with an additional 2k out of which to pay for health insurance, the employer would have to pay an additional 4K in salary, deduct 2k in taxes and pay the 2k net.

By paying for it directly, the outlay by the employer is much less (assuming a high rate taxpayer).

How do you determine that. Revenue take the cash benefit of the plan as bik. That has the same cost to the employer as if he just gave you the money ( which he is exactly what he is in effect doing)

barneystinson

BoatMad wrote: »

How do you determine that. Revenue take the cash benefit of the plan as bik. That has the same cost to the employer as if he just gave you the money ( which he is exactly what he is in effect doing)

Let's say the policy costs 2k after TRS.

If the employer agrees to pay the employee an additional 2k in net pay in order for them to buy their own health insurance, it will mean upping their gross by 4K and deducting 2k in taxes. The cost to the employer is 4K.

If the employer agreed to pay for health insurance as a BIK the employer applies deductions to this amount (2k) as a notional payment to the employee, and deducts the additional tax from the employee's pay. So the cost to the employer is 2k.

BoatMad

barneystinson wrote: »

Let's say the policy costs 2k after TRS.

If the employer agrees to pay the employee an additional 2k in net pay in order for them to buy their own health insurance, it will mean upping their gross by 4K and deducting 2k in taxes. The cost to the employer is 4K.

If the employer agreed to pay for health insurance as a BIK the employer applies deductions to this amount (2k) as a notional payment to the employee, and deducts the additional tax from the employee's pay. So the cost to the employer is 2k.

Err , your not comparing the same figures

Say the health plan costs 2k ,

In order for the employee to make NO payment towards the Health plan , the employer must pay both his and the employees tax costs , hence as you say it costs the employer 4K . The plan is provided to the employee entirely free of charge

In a bik payment of 2K , the employer doesn't pay as much purely because the employee is in effect also contributing to the cost of the plan ( by way of his own increased income tax )

The 2K is still grossed up by revenue , the only difference in the bik method , the Heath plan is not free to the employee.


Ie the employer pays 4K, the health plan is entirely free to the employee

The employer pays 2k plus USC , Prsi etc , the employee pays tax as per bik rules , the plans costs are split between the employee and the company , which is why the company pays less as it is not providing the health plan free to the employee

In one case the company says , here a gross 4K , now buy yourself that 2k plan , in the other he says here's 2k ( plus usc, Prsi etc ) , now try and buy that 2k plan

barneystinson

BoatMad wrote: »

Err , your not comparing the same figures

Say the health plan costs 2k ,

In order for the employee to make NO payment towards the Health plan , the employer must pay both his and the employees tax costs , hence as you say it costs the employer 4K . The plan is provided to the employee entirely free of charge

In a bik payment of 2K , the employer doesn't pay as much purely because the employee is in effect also contributing to the cost of the plan ( by way of his own increased income tax )

The 2K is still grossed up by revenue , the only difference in the bik method , the Heath plan is not free to the employee.


Ie the employer pays 4K, the health plan is entirely free to the employee

The employer pays 2k plus USC , Prsi etc , the employee pays tax as per bik rules , the plans costs are split between the employee and the company , which is why the company pays less as it is not providing the health plan free to the employee

In one case the company says , here a gross 4K , now buy yourself that 2k plan , in the other he says here's 2k ( plus usc, Prsi etc ) , now try and buy that 2k plan

I'm well aware of that, and if you look at the post by Ciaran that I initially replied to, you'll see that what you've just set out there is exactly the point I was making..!

BoatMad

barneystinson wrote: »

I'm well aware of that, and if you look at the post by Ciaran that I initially replied to, you'll see that what you've just set out there is exactly the point I was making..!

I was commenting on the fact that you claimed that the BIK was a cheaper way for an employer to provide health insurance,

IN reality its virtually identical , your comparison is the same as saying its cheaper for an employer to provide a 1k insurance then a 2K one, well doh.

what you said was

From the employer's perspective it certainly doesn't! In order to leave an employee with an additional 2k out of which to pay for health insurance, the employer would have to pay an additional 4K in salary, deduct 2k in taxes and pay the 2k net.

By paying for it directly, the outlay by the employer is much less (assuming a high rate taxpayer).

the outlay is less , because the employer is simply not paying for the whole health care costs. Thats all, nothing to do with the BIK or tax