Taxability of HMO premiums under the Train Law
Lately, I’ve talked to a friend of mine who is the head of recruitment of a large multinational firm. I’ve always been curious as to what would be on the list of benefits that applicants would look for in a company. I wasn’t surprised to find out that a majority of job applicants ask about health maintenance organization (HMO) benefits, and whether these extend to dependents and family members.
As most of you are aware, an HMO, is an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed pre-paid premium. In most cases, it is the employer that shoulders the premium.
We’ve been seeing a lot of news on HMOs lately, particularly due to the fact that premiums paid by employers for health cards provided to employees under an HMO plan are now subject to income tax. Revenue Memorandum Circular (RMC) 50-2018 (A7) provides that premiums on health cards shall be included as part of benefits, incentives, including the 13th month bonus paid by employers to employees which are subject to the current P90,000 tax-exempt threshold.
This is a cause for concern since, as it is, the P90,000 threshold would be easily breached (and the excess subject to income tax) with the amount of the health card premiums joining the amount of other employee benefits, incentives, and the 13th month bonus provided by the employer.
Dominating the news is Sen. Juan Edgardo “Sonny” Angara, who has taken up the cudgels of Filipino employees who stand to have their Christmas bonuses cut short by the RMC. According to Senator Angara, the RMC effectively reverses regulations issued by the Bureau of Internal revenue (BIR) on the tax-exempt nature of HMO premium payments. Section 2.33 (B) (10) of Revenue Regulations (RR) 3-98 provides that premiums for life or health insurance and other non-life insurance shouldered by the employer for his employee shall be treated as a taxable fringe benefit, except the cost of premiums borne by the employer for the group insurance of his employees.
Although an HMO is not an insurance company, the services rendered by HMOs are similar to the service provided by insurance companies. In fact, Revenue Memorandum Circular No. 04-03 defines “insurance and pension funding companies” to refer to those engaged in life and non-life insurance business and pre-need companies, including HMOs.
Amid the uproar denouncing RMC 50-2018, the BIR was quick to respond that it is currently looking at a workaround measure to address the issue. Asked to provide a comment, Deputy Commissioner Marissa O. Cabreros on Tuesday (November 27) noted: “There’s a workaround to be done, [which is] to issue a clarification. I cannot discuss it right now, but within the week we’ll come out with something to clarify the issue for the taxpayers, since they are affected.”
Recently, the BIR issued RMC 96-2018 and it provides: “the implementation of the pertinent provisions under RMC No. 50-2018 relative to the group health insurance premiums (Q7/A7) and director’s fees (Q34/A34), which were not affected by the provisions of the Train Law, are hereby deleted from RMC 50-2018.”
Well done, BIR, well done.
The post Taxability of HMO premiums under the Train Law appeared first on The Manila Times Online.