Additional Avenues For Higher Tax Deduction For Medical Expenses
Aim
1 This circular sets out the extension of higher tax deduction for medical expenses to arrangements where employers provide their employees with inpatient medical benefits in the form of MediShield or Medisave-approved private integrated plan (referred to as “Shield plan”) or make ad-hoc contributions to employees’ Medisave accounts.
2 The maximum tax deduction for medical expenses incurred in any financial year is still capped at 2% of the total employees’ remuneration for that financial year.
Background
3 Since 1 April 2004, employers implementing the Portable Medical Benefits Scheme (PMBS) or the Transferable Medical Insurance Scheme (TMIS) can enjoy a higher tax deduction for medical expenses of up to 2% of their employees’ remuneration, compared to 1% for other companies. The features of PMBS and TMIS are at
Annex 1.
Extending higher tax deduction for medical expenses to employers providing employees with inpatient medical benefits in the form of Shield plan
4 Feedback from employers indicate that some of them prefer to provide inpatient medical benefits in the form of Shield plan to their employees, instead of implementing PMBS or TMIS. They will either pay the premium of such plans directly to the insurance company or reimburse the premium into employees’ Medisave accounts. As these arrangements can also achieve the objective of enhancing portability of medical benefits, the Government has agreed with the tripartite partners’ proposal to extend higher tax deduction for medical expenses to employers with such arrangements.
5. With effect from the Year of Assessment 2008, employers providing their employees with Shield plan can claim tax deduction for medical expenses incurred, up to 2% of total employees’ remuneration, if they meet the following qualifying conditions:
a) provide Shield plans for at least 20% of their local employees as at the first day of the financial year being assessed and all local employees1 who commence their employment during that financial year; and
b) pay Shield plans premium on behalf of their employees directly to the insurance company or reimburse the premium into their employees’ Medisave accounts.
6 However, the additional tax deduction mentioned above excludes premiums for “Riders2 on Shield plans” that cover deductibles and co-payments. This is because the Government does not want to incentivise employers to take up such riders that can potentially result in an over-consumption of healthcare services.
Encouraging employers to make ad-hoc Medisave contribution
7 Currently, employers can make additional contributions to employees’ Medisave accounts subject to a limit of $1,500 per employee per year under the “Additional Medisave Contribution Scheme” administered by the CPF Board. The scheme accepts monthly contributions made under the PMBS as well as ad-hoc contributions made when companies are performing well or when there is unused balance in employees’ outpatient budget. The additional contributions would help enhance employees’ Medisave adequacy to meet future medical needs.
8. To encourage employers to make ad-hoc Medisave contribution in good years, additional tax deduction beyond the 1% limit will be allowed for the amount of ad-hoc Medisave contributions made, even if employers are not adopting any of the portable medical benefits arrangements (i.e. PMBS, TMIS or provision of Shield plan). The overall tax deduction for medical expenses will be subject to the overall cap of 2%.
Administrative requirements
9 Employers who wish to reimburse the premium of Shield plan into employees’ Medisave account or make ad-hoc Medisave contribution have to apply for a new employer reference number with the Collection Planning & Registration Section of CPF Board.
FAQs and Enquiries
10 A list of frequently asked questions can be found in Annex 2. Enquires can be made with:
__________________________________ 1 Under section 14(8) of the Income Tax Act, “local employee” means a full-time or part-time employee who is a citizen or permanent resident of Singapore, and “part-time employee” has the same meaning as in section 66A of the Employment Act.
2 Rider is a provision or modification to an existing insurance policy that provides additional coverage to an insurance policy.
