Income protection is more than just an insurance policy for professionals, independent contractors, and business owners; it’s financial security. It guarantees that a consistent source of income will continue in the event of illness or injury. However, many people are unaware that income protection premiums offer substantial tax benefits, which lowers the total cost of coverage.
| Category | Details |
|---|---|
| Type of Relief | Tax relief at the marginal rate (up to 40%) |
| Coverage | Up to 75% of annual salary (minus entitlements) |
| Personal Policies | Tax relief available on premiums |
| Executive Policies | Employer-paid premiums qualify as business expenses |
| Claim Process | Automated via PAYE or manual claim through Revenue |
| Deductions | Subject to tax, USC, and relevant statutory reductions |
| Governing Authority | Revenue Commissioners, Ireland |
| Official Website | Revenue.ie |
How Income Protection Tax Relief Operates
If you are unable to work due to illness or injury, income protection policies can replace up to 75% of your income. The unspoken benefit? You can significantly lower your out-of-pocket expenses by claiming tax relief on premiums at your highest rate.
Because tax relief is applied automatically when you pay through payroll, your contributions will be much less than you had anticipated. To ensure they receive the relief they are entitled to, people must file a claim with Revenue for direct debit payments. Premiums are deductible for businesses, which reduces corporate tax liabilities while protecting workers.
Important Distinctions Between Executive and Personal Income Protection
Whether the policy is executive or personal determines the tax benefits:
- Personal Income Protection: You can receive up to 40% tax relief if you’re paying for your own plan, which will significantly lower the cost.
- Executive Income Protection: The policy is deductible from corporate taxes if your employer pays for it. Benefits are paid through payroll after statutory deductions are made in the event of a claim.
How to Claim Tax Relief: A Step-by-Step Guide
For employees, tax relief is generally automated through payroll, but self-funded premiums require manual claims. Follow these steps to claim relief:
- Log into Revenue’s MyAccount.
- Select ‘Manage your tax for the current year’ under PAYE Services.
- Navigate to ‘Claim tax credits’ and select ‘Income Continuance’.
- Submit the form, and relief is applied accordingly.
For prior-year claims, follow these steps:
- Request a Statement of Liability through Revenue.
- Complete the Income Tax Return for the relevant year.
- Include ‘Income Continuance’ under tax credits and reliefs.
- Submit the claim for processing.
For business owners, deductions should be documented properly to ensure corporate tax relief eligibility.
Understanding Deductions: What’s Taken from Your Benefits?
When an income protection claim is paid, it is subject to PAYE, USC, and statutory deductions.
- Approved schemes: Taxes are deducted before payout.
- Self-employed individuals: Benefits can be taxed as trading income or through PAYE.
- Unapproved schemes: Tax is deferred until payments exceed 12 months.
How Much Can You Actually Save?
Let’s break it down:
- Premium: €100/month
- Tax relief at 40%: €40 deducted
- Actual cost: €60/month
- 10-year savings: €4,800
For businesses, a €10,000 policy deduction reduces corporate tax liability, increasing savings.
Why Tax-Relieved Income Protection is a Smart Investment
- Significant Cost Savings – Tax relief makes coverage up to 40% cheaper.
- Financial Security – Your income remains protected during illness or injury.
- Business-Friendly – Employer-paid premiums reduce corporate tax liability.
- Easy to Claim – Payroll or direct Revenue claims streamline the process.
The Future of Income Protection: A Smarter Financial Strategy
In a world where financial security is non-negotiable, tax relief on income protection is a powerful tool for cost-effective financial planning. Whether you’re an individual seeking stability or a business owner safeguarding employees, leveraging tax deductions makes income protection more affordable and accessible.
Frequently Asked Questions (FAQ) on Tax Relief for Income Protection
1. How much tax relief can I get on income protection premiums?
Up to 40% of your premium can be claimed as tax relief at your marginal rate.
2. How do I claim tax relief on a self-funded policy?
Submit a tax relief claim via Revenue’s MyAccount, selecting ‘Income Continuance’.
3. Are employer-paid premiums tax-deductible?
Yes, executive income protection premiums are deductible business expenses.
4. Do I pay tax on my income protection payout?
Yes, benefits are subject to PAYE, USC, and other deductions.
5. How much of my salary does income protection cover?
Up to 75% of your salary, minus state benefits and employer sick pay.
6. Can I backdate my tax relief claim?
Yes, you can claim relief for the previous four years through Revenue.
7. What happens if my employer funds my policy?
The employer receives corporate tax deductions, and payouts go through payroll.
8. How does income protection compare to Specified Illness Cover?
Specified Illness Cover pays a lump sum, while income protection provides ongoing financial support.
9. Can self-employed professionals claim tax relief?
Yes, self-employed individuals can deduct premiums as a business expense.
10. Does tax relief apply to all income protection policies?
No, tax relief only applies to Revenue-approved schemes.
