On December 16, the Senate approved a proposal to update the tax deduction limit for optional pensions and health insurance, raising it from €400 to €1,200 per year. The initiators argue that the current amount is no longer enough to cover the costs of these services. While the short term budgetary impact would be small, parliamentarians believe that in the medium to long term the measure could improve tax compliance and help generate additional revenue from quality private services.
More specifically, the proposal aims to triple the limit for the deduction of amounts paid by employees or employers for private health subscriptions or contributions to the third pillar of private pensions. At present, employees can deduct up to €400 per year for private health subscriptions, while employers can deduct these costs for their employees. The applicable tax regime varies depending on who pays. Expenses incurred by the employer for employees’ medical subscriptions are deductible for corporate income tax purposes, to the extent that they are treated as equivalent to wages, and optional health insurance premiums are not subject to social security contributions.
In addition, employees who contribute to a private pension fund (Pillar III) can claim a deduction of up to €400 per year and employers can pay such contributions, also up to a limit of €400 per year. Expenditure is deductible for corporate tax purposes, and any amount over and above this limit is considered as fringe benefits and will be taxed accordingly.
It is important to note that these non-wage benefits are subject to an overall monthly non-taxable threshold of 33%. The proposed new €1,200 limit should take effect on January 1 of the year following publication of the law.