Tax advantages of insurance for companies and freelancers:
Many of the insurances we have contracted involve a deductible expense and therefore tax saving that on many occasions the self-employed do not take into account when filing their income tax returns. Therefore, I will give you a brief explanation of which types of insurance are deductible for self-employed workers and companies to guide and advise them when contracting such insurance. The cost of these insurances decreases considerably due to a deduction or non-taxation
Which insurances are deductible for the self-employed?
We are going to mention some of the most common insurances and from which you can benefit fiscally if you have them or contract them:
– Life Insurance: Deductible are those that the self-employed hire and that cover the risks of death and disability up to a maximum of 500€ per year. This type of insurance is recommended for most of the self-employed as prevention in case of an accident, serious illness, etc. Also, those on which other people depend, such as children, spouse, etc., are usually the most suitable for taking out this type of policy.
– Health Insurance: Health insurance is also deductible for the self-employed. Both those of the self-employed and those of their direct family (spouse and children up to the age of 25). The deductible expense is also up to 500 € per person per year, and 500 euros can be accumulated for each member of the direct family that contracts or has such a policy.
Besides, if a self-employed person has hired workers, it will be possible to deduct for the same concepts and amounts mentioned above if he contracts these insurances for his employees. In this way, it is possible to offer an additional benefit for the employee in addition to obtaining a fiscal benefit with it that we will include in the annual declaration. We must take into account that to take advantage of these benefits, the policyholder must be the autonomous contractor.
Also, sometimes, the Vehicle Insurance could be deducted, but only if it is destined exclusively to carry out its activity and without private purposes. If it were used for both private and professional purposes, such deduction would not apply.
Besides, other deductible insurances are affected by our activity, such as Civil Responsibility Insurance, Commercial Insurance, Transportation Insurance, etc.
– Law 40/1998, of December 9 (BOE December 10), on Personal Income Tax and other Tax Regulations. It was at this time that the legislation considered that the purchase of health insurance and/or health care for employees and their direct relatives should not be considered as compensation in kind for tax purposes, provided that it met certain established requirements.
– Law 46/2002, of December 18 (BOE December 19), on the partial reform of Personal Income Tax and amending the Corporate and Non-Resident Income Tax Laws, establishes the tax advantages of taking out health insurance for employees and their direct relatives.
– Law 35/2006, of 28 November (BOE 29 November), on Personal Income Tax and partially amending the laws on Corporate Income Tax for non-residents and on Wealth Tax, extends the tax advantages of taking out health insurance for self-employed workers under the direct assessment system.
The fee paid by the company per person (employee, spouse, and descendants) is deductible as other social expenses.
The employee and family members
The employee has a double advantage:
- The reduced rate for collective hiring already means a cost-saving
- The payment of the insurance through the company is not considered as payment in kind for the employee and therefore is not taxed in income tax, up to an amount of 500€ per year for each member of the family unit (employee, spouse, and descendants).
Article 42 of Law 35/2006, of 28 November (BOE 29 November), on Personal Income Tax and partially amending the laws on Corporation Tax, Non-Resident Income Tax and Wealth Tax, regulates the type of income and establishes its limits:
Article 42. Income in kind.
1. Income in kind is constituted by the use, consumption, or obtaining, for private purposes, of goods, rights, or services free of charge or at a price lower than the normal market price, even if they do not represent a real expense for the person granting them.
2. They shall not be considered as income in kind:
Premiums or contributions paid to insurance companies for health coverage, when the following requirements and limits are met:
1.º That the coverage of illness reaches the worker himself, being able also to reach his spouse and descendants.
2.º That the premiums or contributions paid do not exceed 500 euros per year for each of the persons indicated in the previous paragraph. The excess over this amount shall constitute remuneration in kind.
Tax advantages for the self-employed
Law 35/2006, of 28 November (BOE 29 November), on Personal Income Tax and partial amendment of the laws on Corporate Tax, Non-Resident Income Tax, and Wealth Tax, establishes certain assumptions that represent tax advantages in the purchase of health and health insurance for self-employed taxpayers who pay tax under the direct estimate system.
Article 30. Rules for determining the net yield indirect estimation.
The health insurance premiums paid by the taxpayer in the part corresponding to his own coverage and that of his spouse and children under twenty-five years of age living with him shall be considered as a deductible expense for the determination of the net yield indirect assessment. The maximum deduction limit will be 500 euros for each of the persons indicated above.