At a glance - Tax treatment of insurance premium
| Nature of insurance policy for which the premium is paid by employer |
Taxable / Not taxable |
| 1 |
Personal Insurance policy where employee is the policyholder.
|
Taxable
|
| 2 |
Group Medical Insurance policy where the benefit is available to all staff.
|
From Year of Assessment 2008, the premiums are not taxable.
Prior to Year of Assessment 2008, the premiums were taxable.
|
3
|
Group Insurance policy (e.g. group term life insurance, group personal accident insurance, etc) where employees are entitled to the payout contractually.
Example
- employee is the named beneficiary of the group insurance policy; or
- where the employee is not the named beneficiary, and the payout would be paid to the policyholder (employer), who is under contractual obligation (e.g. as provided in the employment contract) to disburse the insurance payout to the employee, employee's nominated beneficiaries or employee's next-of-kin
|
The employee is taxable on the premium as he receives benefits in the form of an insurance protection.
In the event of a claim, the insurance payout is not taxable as it is a capital receipt.
Administrative Concession with effect from the Year of Assessment 2013 New!
Group insurance premiums will be exempt from tax in the hands of the employees if the employer elects not to claim a tax deduction for the said group insurance premiums in the corporate/business tax filing for the relevant year.
More information available
|
| 4 |
Group Insurance policy (e.g. group term life insurance, group personal accident insurance, etc) where employees are not entitled to the payout contractually.
Example
- group insurance policy where the employee is not the named beneficiary, and the payouts would be paid to the policyholder (employer), who has a choice to decide whether he wants to disburse the payouts to the employee, employee's nominated beneficiaries or employee's next-of-kin
|
The premiums are not taxable as no benefits-in-kind are granted to employees.
If the employer subsequently disburses the insurance payout to its employees, the payout is taxable as additional remuneration, unless it is received by way of death gratuity or as compensation for death or injuries (which is tax-exempt under the law).
More information available
|
| 5 |
Travel insurance covering the period of business travel |
Not taxable |
| 6 |
Workmen compensation insurance |
Not taxable |
FAQs on Taxability of Group Insurance Premium Paid by Employers
Q1 How do I find out who is the beneficiary?
Please refer to the policy document or check with the insurance provider.
Q2 Employer has taken up a group term life insurance policy for the employees who are not the named beneficiary. Will the employees be subject to tax on the benefits of premium paid by employer if it is not stated in the employment contract that the employer will disburse the payout to the employee/employee’s next-of-kin in the event of claim?
The premiums are not taxable if the employer (policyholder) has a choice or the discretion to decide whether he wants to disburse the insurance payout from the group insurance policy to the employee or his next-of-kin.
The employees will be subject to tax on the share of benefits of premium paid if the employer is under legal obligation to disburse the payout to the employee in the event of claim. Documents such as the employment contract, HR policy, staff handbook, collective agreement etc could contain the details of the contractual obligation by the employer.
Q3 Employer has taken up a group term life insurance policy and is under contractual obligation to disburse the payout to the employee in the event of a claim. What is the procedure to follow if the employer elects not to claim a tax deduction in the corporate/business tax filing for YA2013 so that the premiums will be tax-exempt in the hands of employees?
With effect from the Year of Assessment 2013, for group insurance policy where the employees are entitled to the payout contractually, employer can take up an administrative concession where the employees will not be taxed on the premiums, provided the employer does not claim a tax deduction for the said group insurance premiums in the corporate/business tax filing for the relevant year.
No upfront approval for this administrative concession is required. Once the employer avails himself of the administrative concession, he should apply the treatment consistently for all employees covered by the group insurance policy (i.e. employer cannot choose to report the staff benefit on the share of premiums paid for only some employees covered by the group insurance policy and claim a partial deduction of premium paid in their corporate/business tax filing).
Q4 If the employer does not take up the administrative concession (i.e. employees will be taxed on the group insurance premiums and employer will claim a tax deduction for the premiums paid), how should the employer report the share of insurance premiums paid for the respective employees in their Forms IR8A?
Where the beneficiary is the employee or the employer is under contractual arrangement to give the insurance payout from the group insurance policy to the employee or his next-of-kin, the employee will be taxed on the amount of premium attributable to him.
Attribution can be done using average premium per staff or any other appropriate method which is reasonable and consistent across years.
Example 1: Employer paid total Group Term Life Insurance premium of $108,000 for 2012. As at 31 Dec 2012, the company has 300 employees. The employer may report an insurance premium of $360 ($108,000/300) in each employee’s Form IR8A.
Example 2: Employer purchased Group Term Life Insurance coverage of $50,000 for each employee. The premium is $2 per employee per $1,000 sum assured per annum. For 2012, the annual insurance premium per employee paid by the employer is $100 ($50,000/$1,000 x $2).
In case of staff turnover, premium attributable to an employee can be prorated based on his length of service in the calendar year or any other appropriate method which is reasonable.
Q5 Employer has already submitted the employees’ income information to IRAS for YA2013. The share of group insurance premiums paid for the respective employees were included in their Forms IR8A. Can the employer amend the Forms IR8A to exclude the insurance premium, if it decides not to claim a tax deduction for the group insurance premiums in the corporate/business tax filing?
Yes, the employer may make amendments to the employees’ income information submitted for YA2013. Please refer to the guidelines on making amendments to submitted information.