Is Health Expensive? Unpacking Tax Aspects of Employee Health Costs (PPh 21 & Corporate Tax)

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.

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).

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

Calculation Examples

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:

1. Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP).
2. Government Regulation Number 55 of 2022 concerning Adjustments to Regulations in the Field of Income Tax.
3. 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.
4. 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.
5. Presidential Regulation Number 7 of 2019 concerning Occupational Diseases.