Most tax efficient way to get healthcare

colm_c · 26-06-2019 11:10pm #1

I'm trying to help a friend work out the most tax efficient way to get healthcare.

Their employer has offered to pay it, but the amount will come off their salary.

If they pay it themselves, they are paying it from net salary, and all the tax relief discounts are already applied, but if the employer pays it, there's BIK to think of and there is tax relief available. Does the employer have to pay tax on the insurance cost itself?

Is there an easy way to calculate the cost difference?

mystic86 · 27-06-2019 12:37am

Get the employer to pay it.

Let's say the healthcare costs 1,000, 800 after the relief. Pay it yourself and you pay 800. Get them to pay it and you pay BIK on the 1,000, let's say 500 euro. You can then claim relief on this 1,000, you'll get back 200. This way you've paid a net amount of 300. A lot better than 800.

sonyvision · 27-06-2019 12:40am

mystic86 wrote: »

Get the employer to pay it.

Let's say the healthcare costs 1,000, 800 after the relief. Pay it yourself and you pay 800. Get them to pay it and you pay BIK on the 1,000, let's say 500 euro. You can then claim relief on this 1,000, you'll get back 200. This way you've paid a net amount of 300. A lot better than 800.

The above is correct. Get your employeer to pay it

Mrs OBumble · 27-06-2019 1:35am

Healthcare, or health insurance?

s7ryf3925pivug · 27-06-2019 4:31am

If the amount comes off the salary then I think the only difference would be in what the schemes offer. Group schemes often offer waiving wait periods for pre-existing conditions. Individual schemes rarely do [not unheard of but not even worth asking unless you're buying a premium package].

A benefit is just like additional gross pay. If your gross pay is reduced to cover it then I don't think there's a net difference in terms of tax.

colm_c · 27-06-2019 7:25am

Mrs OBumble wrote: »

Healthcare, or health insurance?

Heath insurance

colm_c · 27-06-2019 7:27am

Camille Clean Navel wrote: »

If the amount comes off the salary then I think the only difference would be in what the schemes offer. Group schemes often offer waiving wait periods for pre-existing conditions. Individual schemes rarely do [not unheard of but not even worth asking unless you're buying a premium package].

A benefit is just like additional gross pay. If your gross pay is reduced to cover it then I don't think there's a net difference in terms of tax.

That's where I'm confused.

Going to ask one of the insurers for costs and then see.

wally1990 · 27-06-2019 7:36am

sonyvision wrote: »

The above is correct. Get your employeer to pay it

Bear in mind, if this person is paying 800 from their net , in theory they must earn up to 1600( assuming higher tax) to afford the 800 as it's coming from their net pay

So yes... Get the employer to pay

Calahonda52 · 27-06-2019 8:38am

Are we all sure about the math here, as the OP says the amount will come off his salary, as opposed to an additional payment.

So he will be 500 less in take home pay if the gross is 1000 as per the example

colm_c wrote: »

I'm trying to help a friend work out the most tax efficient way to get healthcare.

Their employer has offered to pay it, but the amount will come off their salary.

If they pay it themselves, they are paying it from net salary, and all the tax relief discounts are already applied, but if the employer pays it, there's BIK to think of and there is tax relief available. Does the employer have to pay tax on the insurance cost itself?

Is there an easy way to calculate the cost difference?

colm_c · 27-06-2019 9:38am

Calahonda52 wrote: »

Are we all sure about the math here, as the OP says the amount will come off his salary, as opposed to an additional payment.

So he will be 500 less in take home pay if the gross is 1000 as per the example

Exactly, going to call one of the insurers and see if they can help.

namenotavailablE · 27-06-2019 11:15am

Think of it this way (am using a premium of €1000 gross for example):

Option 1: You pay the net premium yourself. The cost will be €800 to you out of your bank account after deducting the tax relief at source of €200.

Option 2: Your employer pays it, treating the gross amount as BIK. You pay extra PAYE, PRSI and USC on the BIK which (depending on your total income) could be as high as 40% + 4% + either 8% (if earning above €70044) or 4.5% (if below) of the gross premium. So, in return for getting the health insurance, you are paying a max of 52% of the gross premium. You can also claim the €200 tax credit back if it's not reflected in your tax credits so that further reduces the overall cost.

Option 2 is definitely a lower cost approach.

Calahonda52 · 27-06-2019 12:13pm

namenotavailabl wrote: »

Think of it this way (am using a premium of €1000 gross for example):

Option 1: You pay the net premium yourself. The cost will be €800 to you out of your bank account after deducting the tax relief at source of €200.

Option 2: Your employer pays it, treating the gross amount as BIK. You pay extra PAYE, PRSI and USC on the BIK which (depending on your total income) could be as high as 40% + 4% + either 8% (if earning above €70044) or 4.5% (if below) of the gross premium. So, in return for getting the health insurance, you are paying a max of 52% of the gross premium. You can also claim the €200 tax credit back if it's not reflected in your tax credits so that further reduces the overall cost.

Option 2 is definitely a lower cost approach.

Option 2 is fine assuming ing it is an extra perk
the OP was clear in his post that
Their employer has offered to pay it, but the amount will come off their salary.

So the OP is 500 lids short in his after tax income on the reduced salary, or am I missing something

namenotavailablE · 27-06-2019 1:44pm

That's the way BIK works though, isn't it, in that the value is treated as income, tax etc calculated on the entire gross' and then the same BIK amount is deducted (since it isn't an actual element of the net payment)?
I'm assuming that that was what was meant by the OP saying "Their employer has offered to pay it, but the amount will come off their salary."

Certainly, if it ISN'T being treated as a BIK, it makes no sense to 'double deduct' the amount.

s7ryf3925pivug · 27-06-2019 3:21pm

I would check if the employer just meant that there would be a salary deduction of the tax on the BIK (as assumed in most replies).

colm_c · 27-06-2019 3:46pm

Here's my understanding of what it will cost according to revenue.

Using simple figures for illustration.

Original salary: 50k
Cost of health policy: 3k

Paying it my yourself, after tax cost 3k

Employer paying it:
New salary 47k
BIK on 3k, 1.5k

So from what I can tell it works out the same.

Less salary, and bik add up to the same cost.

The only options for saving from what I can see are on the tax relief and there maybe different plans and lower costs for companies who have a lot of employees.

Next step, chat to one of the insurance companies.

Calahonda52 · 27-06-2019 8:50pm

the other thing to watch for is if you have a pension plan based on a % of salary

s7ryf3925pivug · 27-06-2019 9:46pm

Calahonda52 wrote: »

the other thing to watch for is if you have a pension plan based on a % of salary

good point. also affects max tax free contributions. Also stock options or other benefits can be % of salary. even raises can be in terms of % of salary.

mystic86 · 28-06-2019 11:17pm

colm_c wrote: »

Here's my understanding of what it will cost according to revenue.

Using simple figures for illustration.

Original salary: 50k
Cost of health policy: 3k

Paying it my yourself, after tax cost 3k

Employer paying it:
New salary 47k
BIK on 3k, 1.5k

So from what I can tell it works out the same.

Less salary, and bik add up to the same cost.

The only options for saving from what I can see are on the tax relief and there maybe different plans and lower costs for companies who have a lot of employees.

Next step, chat to one of the insurance companies.

Well in that case pay it yourself, the employer paying it and reducing your salary by that amount is kinda silly no? Usually a company who offers it is offering it on top of whatever your pay is.

Most tax efficient way to get healthcare

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