I doubt there is anybody in Hungary who hasn’t yet heard of health funds. Many take advantage of the 20% tax credit that can be reclaimed from personal income tax through health funds. In our experience, however, plenty of people, even members, are not fully aware of the benefits of health fund membership, and the tax allowances members can be entitled to. In my article I intend to answer some of the most important questions regarding health funds, including, but not limited to, the advantages you can enjoy from health fund membership and how to obtain them.
Who stands to benefit from a health fund membership?
Any private individual who faces medical expenditures on a regular basis, or who is planning to spend a large amount on healthcare (e.g. corrective eye surgery) should consider becoming a health fund member. It is important to note that health funds can finance the healthcare expenses not only of members but also of their close relatives. However, this does require the prior registration of the close relatives at the health fund. In light of this, there are barely any families in Hungary where at least one person would not benefit from joining a health fund.
How do health funds work?
For a membership fee, health fund members can use well-defined and mostly healthcare services through the health funds (with significant discounts in many cases). The funds reimburse their healthcare expenses (e.g. medicines, glasses, dental treatments, etc.) from the amounts paid into the members’ individual accounts held at the fund, after receiving the invoices.
Health fund members may reclaim 20% of the amount credited on their individual accounts from their personal income tax, but no more than an annual sum of HUF 150,000 (approx. EUR 480). This is then credited to their individual health fund accounts, and can thus be used to cover the expenses of further healthcare services.
Another benefit of health fund membership is that any amount paid into members’ individual accounts but not used can be put into a deposit, generating a return. What is more, a 10% tax credit can also be claimed on any amounts deposited for at least 24 months.
Are only members entitled to pay into their health fund accounts?
Employers of health fund members may also pay into their employees’ individual accounts, with no limitations on these amounts. Such payments are regarded as other benefits on which the employer is liable for 15% personal income tax, and from 1 January 2018 a 19.5% health-care contribution as well (total charge from 1 January 2018: 40.71%).
What other services can be financed from health fund accounts?
Besides healthcare, several other services can also be financed from health fund accounts that many people simply wouldn’t think of. For example, such services include, but are not limited to, contributions to child birth benefits, support for starting years of child-care and school, contributions to funeral expenses or even to instalments of housing mortgage loans. For this financing it is very important that members need to report their claims for such contributions to the health fund by a specific time, and the amounts paid into the individual accounts may only be used to reimburse the expenses of the above services after a “waiting” period of 180 days. Moreover, legislation defines further rules for claiming the above-mentioned services. For instance, monthly contributions to instalments of housing loans may not be claimed in excess of 15% of the minimum wage valid on the first day of the given year, which in 2018 amounts to HUF 20,700 (approx. EUR 67)/month. Naturally, by claiming the contribution to a housing loan repayment instalment totalling HUF 20,700 (approx. EUR 67), the fund member becomes entitled to the 20% tax credit as well.
What should you look out for when preparing your personal income tax returns?
The 20% tax allowance for health fund payments is not given automatically. Health fund members need to make a declaration as part of their personal income tax return to claim the transfer of the tax allowance. It is worth noting though that the 20% tax allowance cannot be claimed on regular contributions by employers.
Can a health fund membership create a tax payment liability?
In the Hungarian tax system there are certain cases when private individual health fund members are faced with tax payment obligations. These cases can generally be divided into two groups. One is when an unauthorised payment is made to the fund member, because of a lack of required medical certificates for instance, or a relative not being registered at the fund. The other is when the member is given a donation (e.g. an amount donated by the employer). These payments are accounted as other income of the individual; on 84% of these payments the health fund member is liable to pay 15% personal income tax and a 19.5% healthcare contribution (total charge: 28.98%), which must be declared in the personal income tax return.
Contributions to employees’ health fund accounts can be beneficial for employers for several reasons. Firstly, payments made to employees in this way can be accounted for as expense, and secondly, employees can be supported financially this way through means that are taxed more favourably than wages, which ultimately has an impact on retaining workers. Send us an e-mail and we will gladly explain to you how this works!