Companies must be the policyholders of medical insurance to guarantee tax exemption

The application of tax exemptions on benefits in kind for health insurance has raised doubts regarding the structure necessary for this benefit to be effective. The Dirección General de Tributos (DGT) has specified the technical requirements that must be met so that health insurance premiums are not taxed under the employee's Personal Income Tax (IRPF).

What the DGT has ruled

According to the interpretation of Article 42.3.c of Law 35/2006 on IRPF, the exemption for health insurance premiums is only applicable if the company holds the status of policyholder. If the company merely acts as a payment intermediary on behalf of the employee, the amount is not considered an exempt benefit in kind, but rather cash remuneration subject to taxation.

Furthermore, the ruling establishes that this tax benefit is strictly personal to the employee. The exemption cannot be extended to the employee's domestic partner, as the regulations do not allow for the application of analogy to expand the cases of tax exemption to other family members or cohabitants not expressly provided for in the law.

What it means for you

For companies, this criterion implies that the management of social benefits must be correctly structured from the contract with the insurer. It is not enough for the company to manage the payment; it must formally appear as the policyholder of the policy so that the employee can enjoy the exemption.

For employees, this means that any health coverage that includes their domestic partner through company payment management will be considered part of their gross salary and, therefore, will be subject to the corresponding IRPF withholding. Coverage for a domestic partner does not enjoy the same tax treatment as that of the employee themselves.

What should be done

It is necessary to verify the policyholder status in the health insurance policies contracted by the company to ensure that the tax treatment is correct. If coverage for family members or domestic partners is desired, it must be kept in mind that such premiums will be taxed as cash remuneration, unless the contracting structure is modified.