Dynamics of PPh 21: Annual Health Insurance Premiums and Refund Scenarios Due to Resignation

In an effort to improve employee welfare and retention, many companies provide private health insurance facilities (Non-BPJS Kesehatan). Often, for cash flow efficiency or corporate discounts, companies pay these premiums in advance for a full one-year period (annual payment). However, administrative tax challenges arise when the employee resigns in the middle of the current year, where the insurance policy allows for a premium refund for the unused coverage period.

This article comprehensively explores the Income Tax Article 21 (PPh 21) implications of this scenario.

Basic Concept: Insurance Premiums as Taxable Objects

In principle, premiums for health insurance, work accident insurance, life insurance, endowment insurance, and scholarship insurance paid by the employer are PPh 21 Objects (Taxable Income) for the employee. This is affirmed in the Income Tax Law and its derivative regulations.

Unlike pension contributions or Old Age Security (JHT) contributions paid by the company (which are not taxable for employees), private health insurance premiums are considered additional economic capability or income for the employee. Therefore, the value of the premium paid by the company must be added to the employee's gross income when calculating monthly PPh 21.

Annual Payment and Refund Scenario

When a company pays a premium for a year in advance (e.g., January 2024 for Jan-Dec 2024 coverage), generally, the entire premium value is recognized as the employee's gross income in that month (or amortized based on payroll policy, but effectively the benefit has been paid).

A problem arises if the employee resigns in the middle of the year (e.g., June 2024). Since the company reclaims (refunds) the remaining premium for July-December from the insurance provider, substantively, the employee does not receive the benefit (income) for that July-December period.

PPh 21 Calculation Mechanism at Resignation (Final Tax Period)

According to MoF Regulation (PMK) Number 168 of 2023, the PPh 21 calculation for permanent employees who stop working during the year is performed in the Final Tax Period (the month the employee stops working).

In this Final Tax Period, the company must recalculate the total income actually received by the employee from the beginning of the year until the last month of work:

1. Gross Income Correction: The gross income value from the insurance component must be corrected to only the amount of the premium actually enjoyed (active period). The remaining premium refunded to the company is not employee income.
2. PPh 21 Recalculation: After the gross income is adjusted, the PPh 21 payable is recalculated for the actual working period using the Article 17 annual rate.
3. Overpayment (Lebih Bayar): Since tax was withheld in previous months assuming full premium income, there is a high probability of PPh 21 Overpayment during the final calculation on form 1721-A1.
4. Refund Obligation: The tax withholder (company) is obliged to return the excess tax to the employee along with the provision of the withholding slip.

Case Example

Conclusion

Non-BPJS health insurance premiums paid by the company are PPh 21 taxable objects. However, if a premium refund occurs due to employee resignation, the premium value recognized as income in the final withholding slip (1721-A1) is only the amount of the used (proportional) premium. The company is required to recalculate in the final tax period and return any excess tax to the employee as mandated by PMK 168/2023.

Regulatory References:

1. Law Number 7 of 2021 concerning Harmonization of Tax Regulations (Article 4 paragraph 1 letter a and Article 9 paragraph 1 letter d).
2. Government Regulation Number 58 of 2023 concerning Article 21 Income Tax Withholding Rates on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
3. 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 (Article 13, Article 19, and Appendix on Final Tax Period Calculation).
4. Director General of Taxes Regulation Number PER-11/PJ/2025 concerning Provisions for Reporting Income Tax, VAT, and Stamp Duty within the Implementation of the Core Tax Administration System (Regarding Procedures for Creating Withholding Slip BPA1/A1).