The MOM issues a circular on the higher tax deduction for medical expenses
The Ministry of Manpower (MOM) has issued a circular detailing the increased tax deduction for medical expenses announced in the 2008 Budget Speech.
Currently, employers who adopt the Portable Medical Benefits Scheme (PMBS) or Transferable Medical Insurance Scheme (TMIS) qualify for the 2% medical expenses cap. Other employers have their tax deduction for medical expenses capped at 1% of their total employees' remuneration.
With effect from Year of Assessment 2008, the 2% cap has been extended to employers' ad-hoc contributions to employees' Medisave accounts (capped at $1,500) and to expenses incurred to provide employees with medical benefits in the form of MediShield or Medisave-approved private integrated plans (Shield plans). The deduction for other medical expenses remains capped at 1% of total remuneration.
The higher cap for contributions to Shield plans is subject to the following conditions:
- The employer must provide Shield plans for at least 20% of all local employees (i.e. full-time or part-time employees who are Singaporeans or permanent residents) as at the first day of the financial year being assessed and all local employees who commence their employment during that financial year; and
- The employer must pay Shield plan premiums on behalf of its employees directly to the insurance company or reimburse the premium into its employees’ Medisave accounts.
However, the increased deduction has not been extended to include premiums for riders on Shield plans that cover deductibles and co-payments. This remains subject to the cap of 1% of total employees' remuneration because the Government does not wish to incentivise employers for taking up these riders as it may result in an over-consumption of healthcare services.
The circular illustrates the calculation of the deductible medical expenses in various scenarios, and appears to indicate that the 1% cap on rider premiums should be calculated separately from the 1% cap on the other medical expenses that do not qualify for the 2% cap. The deduction for these two items and the expenses for providing Shield plans is then capped at 2% of the total wage bill. This means that if the Shield plan expenses amount to less than 1% of the total employees' remuneration, the total deduction allowed for medical expenses would still be 2%. This seems to be at odds with the details released in the Annex to the Budget Speech which states that the medical insurance expenses qualifying for the additional 1% of tax deduction will exclude premiums for policy riders. In this case though, the difference would be in the taxpayer's favour.
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