Permanent Health Insurance (PHI) Schemes, also known as Income Protection or Income Continuity Plans provide payment to individuals who are unable to work for a period of time due to specific health reasons. If the Scheme is Revenue approved, the individual may receive a tax relief. Where the payment is made through deduction from salary, the employee receives relief on the contributions through the "net pay arrangement" basis, where premiums are deducted from the gross pay before tax is calculated.
Tax relief on contributions to Permanent Health Insurance Schemes are calculated by deducting the premium from the gross pay before PAYE is applied subject to a maximum of 10% of the individuals annual income. Contributions paid to Permanent Health Insurance Schemes do not qualify for PRSI or USC relief.
A common confusion exists between Permanent Health Insurance Schemes and Private Medical Insurance Schemes such as VHI, Laya Healthcare, Aviva or Glohealth. Many people confuse a PHI scheme with medical insurance, critical illness cover, life assurance and private pension schemes when calculating payroll.
In some cases, contributions made by an employee may include contributions to a number of the above mentioned schemes so it important to clarify the exact nature of the payments so they can be correctly processed. Relief can only be granted through the payroll process where the premium is paid by the employee through deduction from his/her salary. If the payments are made through the bank to the insurance company then the employee should contact Revenue directly to have the appropriate relief granted through his tax certificate. An employee can apply for an increase in his tax credits and standard rate cut off point at any time during the year or apply for a refund at the end of the year.