Premium Payments on Health and Hospitalization Insurance – Tax Rule

Health insurance is an insurance against the risk of incurring medical expenses among individuals. The insurer can develop a routine finance structure, such as the monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. According to the Health Insurance Association of America, health insurance is “coverage that provided for the payments of benefits as a result of sickness or injury. Includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment.”

stevepb / Health and Hospitalization Insurance

For Philippine income tax purposes, premium payments on health and hospitalization insurance may be deducted from the gross compensation income or the gross business/professional income of a family of a resident citizen, non-resident citizen, and resident alien. Health and hospitalization payments are deductible only in the following conditions that must be encountered:

1. The insurance shall be taken by the individual taxpayer himself for his family;
2. The amount being claimed shall not exceed P2,400.00 a year or P200.00 a month per family;
3. The family has a gross income of P250,000.00 or less for the taxable year.

The total family income includes primary income and other income from sources received by all members of the family. For married taxpayers, only the wife or the husband entitled to claim for additional exemption for dependents is allowed this deduction.

Any other type of insurance tends to be out of the running for a deduction, even if it is not clearly related to getting sick includes life insurance policies; policies providing payment for loss of earnings (disability insurance); policies that pay for loss of limb or sight; policies that pay a guaranteed amount each week for a stated number of weeks if hospitalized for sickness or injury; the part of car insurance premiums that provides medical insurance coverage for all persons injured in or by the car, because the part of the premium for, the spouse and the dependents is not stated separately from the part of the premium for medical care for others.

Sample Problem: Health and Hospitalization Insurance

Angel, a single mother, is a government employee who earns a monthly gross compensation income of P18,000. Effective, January 1, 2017, she took a hospitalization insurance for her and her 3 year old son. She right away paid the annual premium of P2,400.However, had she opted to pay this premium monthly, an additional P50.00 pesos per month is charge. How much is the deduction for the health and hospitalization premiums?

Click to show the answer

The first condition that the insurance shall be taken by the individual taxpayer himself for his family has been satisfied.

The second condition speaks for the annual limit of P2,400 and monthly limit of P200.00 for each family. The actual premium paid by Angelu for the whole year was P2,400. This qualifies her to claim the maximum P2,400. Of the annual premium were lower than P2,400, the lower amount shall be allowed. Had she chosen to pay the premium monthly, the total payment would have been P3,000 (250 X 12). If this is the case, she can only claim P2,400- the maximum limit.

The third condition is likewise satisfied. The family gross income, she being the sole bread winner, is 216,000, far lower than the 250,000 maximum gross income limit.