Employee health is a vital company asset. However, how a company covers health costs—whether through insurance, reimbursement, or hospital facilities—has different tax implications for both the employee (Income Tax Article 21/PPh 21) and the company (Corporate Income Tax/PPh Badan). Since the enactment of the Harmonization of Tax Regulations Law (UU HPP) and its derivatives regarding Benefits in Kind (Natura/Kenikmatan), this tax landscape has fundamentally changed.

Here is a guide to the tax aspects for various health cost scenarios.

1. Reimbursement Scenario

In this scenario, the employee pays for treatment first using personal funds, then claims the cost from the company.

PPh 21 Aspect (Employee): Reimbursement of medical expenses in the form of cash constitutes regular or irregular income in the form of money. Therefore, this reimbursement amount is a PPh Article 21 Object which must be combined with the salary for tax calculation.
Corporate Tax Aspect (Company): This cost is considered a salary/allowance expense, so it is deductible by the company as it is directly related to the employment relationship.

2. Direct Payment to Hospital Scenario (Health Facility)

In this scenario, the company pays the medical bill directly to the hospital or clinic (not giving money to the employee). This is categorized as Benefit in Kind (Kenikmatan).

PPh 21 Aspect (Employee):
- General Principle: Medical facilities generally become PPh 21 Objects.
- Exception (Non-Taxable Object): Health services and treatment facilities from the employer are excluded from PPh objects (tax-free for employees) only if provided for handling: (1) Work accidents, (2) Occupational diseases, (3) Life-saving emergencies, or (4) Follow-up care and treatment due to work accidents/diseases.
- If health facilities are provided outside of these four conditions (e.g., common flu, routine check-ups, or non-emergency childbirth), then the value of that benefit becomes a PPh 21 Object.
Corporate Tax Aspect (Company): These health facility costs are fully deductible by the company, regardless of whether they are taxable objects for the employee or not.

3. Occupational Disease and Work Accident Scenario

The government provides special treatment for work risks. Health or treatment facilities provided in connection with work accidents or occupational diseases are fully Non-PPh 21 Objects for employees.

The definition of occupational disease refers to Presidential Regulation Number 7 of 2019, which includes diseases caused by exposure to work activity factors (chemical, physical, biological).

4. Health Insurance Premiums

Paid by Employer: Health Insurance premiums (BPJS Kesehatan) or private insurance paid by the employer are PPh 21 Objects for employees (adding to gross income) and are Deductible by the company.
Paid by Employee: Premiums paid by the employee themselves do not reduce PPh 21 gross income, but when the employee receives insurance benefits (claims), that money is Not a Tax Object.

Calculation Examples

Case A (Reimbursement):

Mr. A had a fever and spent Rp1,000,000 on treatment. He claimed it from the office and received Rp1,000,000 in cash.

Tax: The Rp1,000,000 is added to Mr. A's gross salary for that month and subject to PPh 21 (Monthly Effective Rate/TER).

Case B (Work Accident):

Mr. B was injured while operating factory machinery. The company directly paid the hospital cost of Rp20,000,000.

Tax: The Rp20,000,000 is Not a PPh 21 Object. Mr. B is not taxed on this facility. The company is still allowed to expense the Rp20,000,000.

Case C (Non-Work Facility):

Mrs. C (Director) received a routine medical check-up facility paid directly by the company to the hospital worth Rp5,000,000 (not work-related/emergency).

Tax: The Rp5,000,000 is a Benefit in Kind that becomes a PPh 21 Object. This value is added to Mrs. C's gross income for tax withholding.

Conclusion

Companies must carefully sort health financing methods. Cash reimbursement is always taxable. Facilities (direct payment to hospitals) can be tax-free only if related to work accidents, occupational diseases, or emergencies. However, from the Corporate Tax perspective, all such costs are now deductible as company expenses, ending the era of fiscal correction on health benefits in kind.

Regulatory References:

Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP).
Government Regulation Number 55 of 2022 concerning Adjustments to Regulations in the Field of Income Tax.
Minister of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Compensation in Connection with Work or Services Received or Obtained in the Form of In-Kind and/or Benefits.
Minister of Finance Regulation Number 168 of 2023 concerning Implementing Guidelines for Withholding Tax on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
Presidential Regulation Number 7 of 2019 concerning Occupational Diseases.

Telah dikurasi oleh

Lilik F Pracaya, Ak., CA., ME., BKP (C) - Transfer Pricing Specialist UK-ADIT

Managing Director/ Managing Partner

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