Employer Health Tax
New for 2019 is the Employer Health Tax. This new payroll tax replaces the Medical Service Plan that is currently in place. The monthly Medical Services Plan payments continue to be charged throughout 2019 but are eliminated January 1, 2020.
The lost revenue will be replaced with a payroll tax. Employers with payroll costs of less than $500,000 per year are exempt. Employers with payroll costs of between $500,000 and $1,500,000 pay 2.95% on their annual payroll in excess of $500,000. Employers with payroll costs of more than $1,500,000 pay 1.95% of their annual payroll costs with no exemption. Charitable or Non-Profit employers, with payroll costs of less than $1,500,000 are exempt.
Employers in BC with an annual payroll over $500,000 must register for an employer health tax account by May 15, 2019. To register you need to use eTaxBC at etax.gov.bc.ca/btp/eservices. On this page, under the heading “Register – Apply for a new account,” select “Employer Health Tax.” The process to register should take ten to twenty minutes. To register you will need your federal business number, mailing address, physical location and your incorporation number and incorporation date if your business is incorporated. Once you have registered for the Employer Health Tax you need to enrol for access to eTaxBC or add access to your existing eTaxBC account.
The first Employer Heath Tax return is due March 31, 2020, for the calendar year 2019. For subsequent years, March 31 of the following year will be the due date to file your Employer Heath Tax return.
Instalment payments are required if your Employer Health Tax exceeds $2,925 in the prior year. For 2019 instalment calculations, you are deemed to have owed Employer Health Tax based on 2018 payroll. The instalments are due June 15, September 15 and December 15 and are calculated as 25% of the previous year’s tax or 25% of the current year’s estimated tax. If your estimated tax remittance ends up being too low, you will be charged interest on the shortfall. The balance of the Employer Health Tax is paid with the annual filing of the health tax return which is due March 31 of the subsequent year.
The instalment payments, as well as the payment due on filing the return, can be paid online using eTaxBC or through your financial institution using electronic funds transfer, bill payment service or wire transfer. The payee name for financial institution bill payment services will be a variation of BC – EMPLOYER HEALTH TAX.
The instalment base of $2,925 equates to payroll in the prior year exceeding $599,152 ((599,152 – 500,000 x 2.95%). If your annual payroll exceeds $599,152 you will need to pay instalments. The first instalment is due June 15, 2019, which is fast approaching.
If you have associated employers, the $500,00 exemption is shared. For example, you own company A with a payroll of $200,000 and company B with a payroll of $400,000. Each company separately is under the $500,000 exemption. Combined, both companies have a payroll of $600,000 which exceeds the exempt $500,000 amount. There is $100,000 of Employer Health Tax that must be paid. Associated employers must enter into an agreement to share the $500,000 exemption if applicable.
The Employment Health Tax is charged on remuneration for employees paid in British Columbia. Where an employee is also an owner, their wages and bonuses and like remuneration are subject to Employment Health Tax but dividends they receive are not subject to the Employment Health Tax. Payments to independent contractors are not subject to Employment Health Tax. It is a question of fact as to whether an independent contractor is actually an employee. You need to be confident that your contractors are not actually employees.
The Employer Health Tax is here. If you are not sure of your status regarding its applicability to your situation, contact your professional advisor.