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How Does Tax Relief on Income Protection Work?

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Income protection premiums can seem expensive especially compared to something like mortgage protection which is cheap as old chips.

Why does income protection cost more?

Well, simply because you’re less likely to die during the term of your mortgage protection; the risk of you making a claim on income protection is much MUCH higher.

And if the insurer gets a whiff that they may have to pay out, they hike your premiums to cover their butt.

Fortunately, tax relief on your income protection can reduce your premiums by up to 40% making it a more attractive proposition.

Here at lion.ie, we recommend income protection above all other policies.

You only have one income coming into your account every month, the first payment out of your account should be to protect it.

We’ve helped hundreds of clients protect their income.

In this article, we’ll answer the questions we have been most frequently asked by people just like you.

If you’re considering income protection and are wondering how you can reduce your premiums using tax relief, you’re in the right place

Are income protection premiums tax-deductible?

Income protection premiums are tax-deductible on the condition that the scheme has Revenue approval.

All income protection plans that we arrange have Revenue approval.

If it’s a personal policy (i.e. you pay the premiums), you get tax relief at your marginal rate. If you pay 40% income tax, you can claim 40% relief.

If it’s an executive policy (i.e your company pays the premiums), the company can claim corporation tax relief and there is no BIK for you the employee.

Can you pay income protection premiums from your gross income?

You can if your employer allows it (rarely possible in the private sector)

If so, your employers will deduce the payment from your gross salary so you don’t have to claim tax relief.

If you’re a self-employed director, your company can pay the premiums for you.

However, if you work in the private sector, you will pay the gross premium to the insurance provider and claims back the tax relief annually on My Account.

How do you claim tax relief on income protection?

One of the most FAQ is “where do you put income protection on tax return”

It’s straightforward:

  • If you haven’t done so already, you need to register on MyAccount
  • Under PAYE services, you’ll find “Manage Your Tax”
  • Hit “Claim Tax Credits”
  • There you will find “Health” and “Income Continuance”

By the way, just because this stuff isn’t confusing enough, income protection is also known as Permanent Health Insurance (PHI)

income protection tax season

Can you claim income protection tax relief for previous years?

Yes, if you forgot to claim tax relief up to now, you will find a “review your tax” link where you can claim relief for previous years.

Are payments received on an income protection policy taxable?

I wish income protection payouts were tax-free, alas, they’re not.

Income protection payouts replace the income you would have earned if you were still working.

As such, they are taxed as income so are subject to income tax, USC and PRSI.

Who is responsible for the tax payable on income protection payouts?

The insurance provider as the administrator of the scheme will deduct the correct level of tax before paying out.

If you are self-employed, the insurance provider will pay the gross sum to the company and the company will sort out the tax.

I’m considering serious illness cover instead of income protection, am I crazy?

Yes.

Income protection covers you for any illness or accident that stops you from doing your job. Serious illness cover will only pay out on specific illnesses.

So what happens if you can’t work due to an illness not specified on your policy?

You get nothing.

Income protection costs more because it gives better protection. It is THE BEST insurance policy you can buy.

Read more : Income Protection V’s Serious Illness Cover

Over to you

If you’re on the fence about income protection and have some concerns, please give me a call on 05793 20836 and we can go through them.

But please, I’m not here to convince you or persuade you, only you can decide, I am happy to answer any questions.

Alternatively, if you have made up your mind and you’d like some options, please complete this questionnaire and I’ll send some quotes.

Thanks for getting this far

Nick

PS: you can schedule a callback here if that suits you better.

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I’m not your ma.

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