On October 24, 2011 the Supreme Administrative Court (hereinafter the “NSA”) adopted a resolution on the taxation of employer funded medical policies (court file no II FPS 7/10). NSA concluded that the employer is required to plus the value of medical subscriptions to employee’s revenues from employment, which constitutes base for personal income tax contributions.
According to the NSA a medical policy constitutes a free service which has a significant financial impact. The revenue from this account is created on receipt of permission to use the medical policy, regardless of whether the employee will benefit from a specific medical service. In determining individualized revenue attributable to one employee, the purchase price of the package should be taken into account. If the company medical policies are paid for all employees in a lump sum, the easiest way is to divide the overall lump sum paid by the employer by the number of employees authorized to use the policy.
Arrears apply to entrepreneurs who have not yet paid the tax for employee medical packages. The business owner should adjust the PIT-4R and PIT-11 declaration and remit unpaid income tax for the account of the applicable tax authority along with backed interest. Failure to comply may result in the initiation of tax proceeding and the issuance of a tax liability decision. However, at the request of the taxpayer, the tax office may in qualifying circumstances defer the tax payment, order its apportionment or forgive the backed taxes in whole or in part, including the interest on arrears. At the same time, the liability of the payer for the tax liability ceases after five years from the end of the calendar year in which the payment was due.
The resolution adopted by the NSA on the taxation of medical packages is also important for social insurance contribution since the base for social insurance contribution is employee’s revenue within the meaning of the Personal Income Tax Act. Since the NSA held that medical policies taken out by an employer constitute revenue, they will be included in the calculation of contributions to social and health insurance. The payer must therefore add the value of the policy to other revenues of the employee, then from that sum deduct and pay the applicable contributions.
These contributions must be documented in an itemized monthly ZUS RCA report for the month when the fee for the employee policy was paid. If the employer did not include the paid medical packages in the amount of base for social contributions, it should prepare and send corrections to the Social Insurance Institution. Arrears are applicable for the last 10 years.
It is worth mention that there are exceptions to the contribution requirement. First, according to par. 2 section 1 point 24 of the Regulation Minister of Labour and Social Policy dated 18.12.1998 which details the rules for determining the basis of contribution to the pension and social security fund, policy contributions do not need to be paid if, under the provisions of collective bargaining agreements or pay provisions the employee retains the right to the policy and at the same time is entitled to receive the remuneration for disability leave, sickness benefit, maternity benefit, care-taking benefit or rehabilitation benefit. This of course, provided that during the paid period the employee can actually use the policy. The collective bargaining agreement or pay provisions must explicitly provide for the use of the medical package while the employee is entitled to receive the aforementioned remuneration or benefit. Secondly, par. 2 section 1 point 26 of this Regulation provides that the payer is not required to contribute from the financial benefits of collective bargaining agreements, pay rules or pay provisions, which gives a right to buy goods or services for less than the retail prices.