Tax treatment of health insurance premiums paid by the company

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the tax nature of health insurance premiums that companies pay for their employees and their families. This distinction is fundamental to determining the correct application of Personal Income Tax (IRPF).

What the DGT has ruled

The inquiry focuses on the application of article 42.3.c) of Law 35/2006. The ruling establishes that health insurance premiums paid by the company for the employee, as well as the portion of their children's premiums assumed by the company, are considered exempt benefits in kind provided that two requirements are met: they must be agreed upon in the employment contract or the collective agreement, and they must not exceed the established legal limits.

However, the resolution introduces a crucial distinction regarding the portion of the children's premium that the company does not assume, but instead deducts from the employee's net salary. In this case, said amount does not constitute a benefit in kind, but must be classified as a mediation of payment of cash earnings.

What it means for you

For companies, this ruling requires precise payroll management. It is necessary to clearly differentiate between the benefit granted to the employee and the mere administrative task of managing the payment of a premium that the employee themselves must cover through their net salary.

For the employee, the consequence is direct regarding their taxable base. Only the portion of the premium that the company assumes under a prior agreement benefits from the tax exemption. The amount deducted from their payroll to cover the portion for their children is not an additional benefit, but a payment that the employee makes through the company.

What should be done

It is necessary to verify that the health insurance covered by the company is duly formalized in the employment contract or the applicable collective agreement to ensure its exemption. Likewise, the company must ensure that the accounting and the payroll breakdown correctly reflect whether the concept is a benefit in kind or a mediation of payment, avoiding errors in the settlement of IRPF.