Accident insurance covering private life is considered pay in kind

The Directorate General of Taxes (DGT) has clarified the tax treatment of accident insurance premiums paid by a company when the coverage extends beyond the strictly professional scope. This distinction is fundamental in determining whether there is an obligation to withhold tax from employees' payrolls.

What the DGT has ruled

The tax authority's criteria distinguishes between two types of coverage. On one hand, premiums for occupational accident insurance or civil liability insurance are not considered pay in kind, provided they exclusively cover risks derived from professional activity. On the other hand, in the case consulted, the accident insurance constitutes pay in kind because it includes coverage for contingencies outside of professional activity, such as the insured person's private life.

As this is a benefit covering personal risks unrelated to work, the premium must be valued at the cost incurred by the company and must be integrated into the worker's taxable base according to Law 35/2006 (LIRPF).

What this means for you

If your company offers accident insurance that is not limited exclusively to occupational risk, but extends its protection to the employee's private life, there is a direct fiscal impact:

• For the company: There is an obligation to value the premium as pay in kind and apply the corresponding withholding tax in the payroll.
• For the worker: The cost of said coverage is added to their employment income, which increases their taxable base and, consequently, their tax burden under Personal Income Tax (IRPF).

What should be done

It is necessary to analyze the accident insurance policies contracted by the company to verify whether the coverage is strictly occupational or if it includes private life risks. In the event that the policy is mixed, the company must adjust the withholding treatment in the payrolls to comply with current regulations. It is recommended to value each insurance contract individually to determine its correct tax classification.