Is Employer-Paid Group Health Insurance Subject to Fringe Benefits Tax?

Premiums an employer pays for group health or life insurance covering its employees are not subject to fringe benefits tax (FBT) — Revenue Regulations (RR) No. 3-98 specifically excludes “the cost of premiums borne by the employer for the group insurance of his employees” from the list of taxable fringe benefits, a position the BIR reaffirmed in 2018 after briefly muddying it.

This matters to any employer weighing HMO coverage, group life insurance, or a similar benefit plan for staff, because getting the group-vs-individual distinction wrong can mean paying FBT on a benefit that was never supposed to be taxed — or missing FBT on one that is. This guide covers the exemption’s text, why it was briefly thrown into doubt in 2018, how individual policies for managers are taxed differently, and a worked example contrasting the two.

What does RR No. 3-98 actually exempt? #

RR No. 3-98, the regulation implementing the fringe benefits tax provisions of the Tax Code, lists the cost of employer-paid group insurance premiums as one of a small number of fringe benefits specifically carved out of FBT. The regulation’s general rule is that life or health insurance premiums an employer pays for an employee are a taxable fringe benefit — but it then lists exceptions, and group insurance is one of them.

Secondary tax-practice sources that reproduce the regulation’s operative language describe it this way:

“Under RR No. 3-98 the cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; [and] (b) the cost of premiums borne by the employer for the group insurance of his employees.”

That second exception — item (b) — is the one that matters here: as long as the insurance is structured as group insurance of employees, the employer’s premium cost falls outside FBT entirely, with no 50%-reduction formula or grossed-up computation to run, unlike housing or vehicle benefits (see Fringe Benefits Tax on Employer-Provided Housing).

Why was this exemption briefly in doubt in 2018? #

In 2018 the BIR issued Revenue Memorandum Circular (RMC) No. 50-2018, which folded employer-paid group health insurance premiums into the ₱90,000 “other benefits” ceiling that otherwise covers things like the 13th-month pay and de minimis benefits — a move that would have made excess premiums taxable as compensation for rank-and-file employees. The circular drew pushback from tax practitioners and the insurance industry, since it appeared to contradict the standing RR No. 3-98 exemption and decades of BIR rulings (including BIR Ruling No. DA-081-03) treating group insurance premiums as outside both FBT and compensation income.

The BIR corrected course later that year. RMC No. 96-2018 deleted the RMC No. 50-2018 provision that had treated group health insurance premiums as taxable compensation, restoring the position that the premium cost is not taxable to the employee. Employers who now set up or review a group HMO or group life plan should rely on the RR No. 3-98 exemption as currently in force, not on the brief 2018 detour — but because this is a point tax practitioners have flagged as having been genuinely unsettled once already, confirm current guidance with your tax adviser or RDO before treating a borderline plan structure as automatically exempt.

Group insurance vs. an individual policy for one manager #

The exemption in RR No. 3-98 applies only to insurance structured as a group plan covering employees generally — a policy an employer buys individually for one selected manager or supervisor, rather than as part of a plan covering a defined class of employees, is not “group insurance” for this purpose and is taxed as an ordinary fringe benefit. This distinction is the one place employers most often get the rule wrong, because both arrangements involve “the employer paying an insurance premium for an employee,” but only one of them qualifies for the carve-out.

A company that offers the same group HMO enrollment to every regular employee, and separately buys an extra personal accident policy just for its general manager, has one FBT-exempt benefit and one taxable one running side by side — each needs to be tracked and reported on its own basis.

Worked example: group HMO plan vs. an individual policy for one executive #

A mid-sized company enrolls all 40 of its regular employees in a group HMO plan at ₱18,000 per employee per year, and separately buys a standalone personal life insurance policy for its general manager (a managerial employee) at ₱60,000 per year.

The company pays no FBT at all on the ₱720,000 spent on the group HMO plan, but owes ₱32,307.69 in FBT on the ₱60,000 individual policy for its general manager — the same ₱60,000 figure the general manager never personally pays tax on, since FBT is a final tax borne entirely by the employer. For the filing mechanics that cover both this benefit and any others an employer reports in the same quarter, see What Is Fringe Benefits Tax and How Do You File BIR Form 1603Q?.

Frequently asked questions #

Is employer-paid HMO or group health insurance taxable to the employee? #

No. The cost of premiums an employer pays for group insurance covering its employees — including group health (HMO) and group life insurance — is specifically excluded from fringe benefits tax under Revenue Regulations No. 3-98. This exemption applies regardless of whether the employee is rank-and-file or managerial/supervisory.

Does the group insurance exemption also mean the premium is exempt from withholding tax on compensation? #

The fringe benefits tax exemption and the income-tax-on-compensation question are analytically separate, and secondary commentary has flagged this distinction since the 2018 RMC No. 50-2018 episode. The safer, commonly followed position — reflected in BIR rulings such as DA-081-03 and restored after RMC No. 96-2018 — treats the group insurance premium as excluded from both FBT and compensation income, but confirm current BIR guidance for your specific plan structure before relying on this for payroll purposes.

What happened with RMC No. 50-2018 and group health insurance premiums? #

RMC No. 50-2018 briefly treated employer-paid group health insurance premiums as part of the ₱90,000 “other benefits” threshold for rank-and-file employees, which would have made excess premiums taxable as compensation. RMC No. 96-2018 deleted that provision, restoring the position that group insurance premiums are not taxable as compensation.

Is an individual health insurance policy for a manager treated the same as group insurance? #

No. The RR No. 3-98 exemption applies specifically to group insurance. A policy taken out individually for a selected managerial or supervisory employee, rather than as part of a plan covering a group of employees, is not “group insurance” for this purpose and is instead treated as an ordinary taxable fringe benefit subject to the 35% fringe benefits tax.

Does the size of the employer’s workforce affect whether a health plan counts as group insurance? #

The exemption turns on whether the policy is structured as a group plan covering employees generally (or a defined class of employees) rather than as an individually selected policy for one or a few people. A small company that enrolls all of its employees in a single group HMO plan is still within the exemption; a company that buys a personal health policy for one favored executive is not.

Summary #

Employer-paid group health and life insurance premiums are excluded from fringe benefits tax under RR No. 3-98’s group-insurance exception — a position the BIR briefly disturbed with RMC No. 50-2018 in 2018 before restoring it through RMC No. 96-2018. The exemption turns on the plan being structured as group insurance covering employees generally; an individual policy bought for one manager falls outside the exemption and is taxed as an ordinary fringe benefit at the full 35% rate on its grossed-up value. Before setting up or renewing a health or life insurance benefit, confirm which category your plan falls into — see Fringe Benefits Tax on Employer-Provided Housing and How to Compute Fringe Benefits Tax for how the grossed-up computation works on benefits that are taxable.