112A Taxation of certain perquisites

Summary

This section is concerned with the situation in which an employer pays medical insurance premiums or long-term care insurance premiums of an employee as part of the employee’s remuneration (as a perquisite). As insurers would not be able to distinguish such payments from others made by employers on behalf of their employees, all premium payments by employers are treated in the same way, that is, the reduced premiums under the tax relief at source arrangements are payable in all cases. This section ensures that employees and employers are left in the same position as they would be under previous arrangements (i.e., prior to the introduction of tax relief at source) in relation to the taxation of the perquisite.

An employee is chargeable to income tax at his/her marginal rate on the value of the gross premium (as a taxable perquisite) but is given a credit for tax relief, at the standard rate, in respect of that premium in the calculation of the tax chargeable on that perquisite. In the case of medical insurance premiums paid by an employer under a “relevant contract” within the meaning of section 470B, renewed or entered into between 1 January 2009 and 31 December 2011, the employee is also given a credit for any age-related tax credit due under that section (subject to certain restrictions – see section 470B(5)(c)).

To recover the benefit obtained by the employer by way of the reduced premium paid, a payment equal to 20 per cent of the gross premium will have to be made by the employer to Revenue. This tax payment is allowed as a deduction in taxing the employer’s profits so that, when added to the net amount of premiums actually paid to the insurer, the employer, as previously, gets a deduction for tax purposes equivalent to the gross premium.

In the case of medical insurance premiums paid by an employer under a “relevant contract” within the meaning of section 470B, renewed or entered into between 1 January 2009 and 31 December 2011, the payment the employer has to make to Revenue is to be calculated at 20 per cent of the gross premium net of any age-related tax credit due under section 470B.

Details

Definitions

(1) A number of terms are defined by reference to sections 470, 470A and 470B – that is, the sections which, respectively, provide tax relief for medical insurance premiums, tax relief for long-term care insurance premiums, and age-related tax credit for medical insurance premiums.

“employee” and “employer” have the same meanings, respectively, as in section 983.

Taxation of perquisite

(2) & (2A) Section 112 is applied by the section so as to tax the perquisite comprising the payment of medical insurance or long-term care insurance premiums of an employee by an employer as if the deduction of tax at the standard rate or age-related tax credit (see section 470B) had not been made. In other words, the employee will be charged to tax on an amount equal to the gross insurance premium with relief at the standard rate and age-related tax credit, (if any), due, being included in the charging calculation.

Charge on employer

(3) Where an employer pays medical insurance premiums or long-term care insurance premiums as part of an employee’s remuneration (that is, as a perquisite) and deducts and retains income tax at the standard rate under the relief at source arrangements, a charge of income tax equal to the standard rate percentage of the gross premium (net of age-related tax credit, if any) is imposed on the employer. That tax liability is allowable as a deduction in charging the employer’s profits to tax so that the employer is left in the same overall position as in the pre-relief at source situation by getting a deduction equivalent to the gross premium.

Payment of charge

(4) The provisions of subsections (3) to (6) of section 238, modified as necessary, are applied in order to provide for the accounting for, and payment of, the charge imposed on the employer.

Relevant Date: Finance Act 2019