Your employer's health cover is taxed here and often ignored there

It is cover your employer buys for you rather than pay you receive. HMRC treats it as a benefit in kind, so the employer reports it and pays Class 1A National Insurance. You pay income tax on its value, usually through your tax code.

GOV.UK sets out the employer's duties for medical or dental treatment and insurance. What you report depends on the kind of cover and on whether the employer pays the provider directly. The value then flows onto the P11D and into your tax code.

So the cost to you is real, though indirect. You never see the premium, yet you pay tax on it every month through a lower allowance.

Our article on reading a P60 for US purposes explains where these figures surface in the payroll documents you already have.

The exempt list is short and specific. GOV.UK confirms that one periodic health screening a year, eye tests required for screen work and flu vaccinations fall outside the charge. Glasses provided for screen work do too.

Two further exemptions matter for people who travel. Medical treatment outside the UK is exempt where the employee works abroad and needs treatment, provided the employer committed in advance or paid the provider directly.

Treatment or insurance for work-related injuries and diseases is also exempt, as is up to £500 towards helping an employee return to work after being assessed as unfit.

One warning sits in the same guidance. Cover provided through a salary sacrifice arrangement must be reported, so the exemption route closes when the sacrifice route opens.

The starting point is the fringe benefit rules. Publication 15-B explains that the exclusion covers employer contributions to an accident or health plan, including contributions to the cost of accident or health insurance. It also covers payments or reimbursements of medical expenses made under such a plan.

Notice what the rule turns on. It asks whether an accident or health plan exists and whether the employer contributed to it. It does not ask which country the employer sits in.

So a genuine UK health scheme usually fits the description. We still read the policy rather than assume, because the arrangement has to be a plan and not a cash allowance dressed up as one.

Here is the part worth slowing down for. Your UK tax bill includes tax on a benefit your US return never records as income. The two systems are measuring different things, so the totals stop lining up.

That matters because a foreign tax credit relieves foreign tax on income the US is taxing. Form 1116 allocates tax to income categories, and tax paid on an item the US excludes has no US income to attach to.

In practice the effect is small on a single policy and noticeable across a package. Health cover, a car and school fees together can move a meaningful amount of UK tax into the wrong place.

Our article on relocation packages works through the same problem for moving costs, which follow a similar pattern.

It can. The foreign earned income exclusion applies to pay for personal services performed abroad. A benefit the US excludes from income never enters that calculation, so it cannot be excluded twice.

The knock-on effect appears in the credit. Less UK tax attaching to US-taxed income means fewer credits available for investment income and other items later in the return.

So the sequence matters: work out what the US counts as income first, then decide which UK tax relates to it.

Personal policies get different treatment on both sides. Britain gives no relief for premiums you pay from taxed income. The US allows medical costs as an itemised deduction only above 7.5% of adjusted gross income, and only for people who itemise.

Most US citizens abroad take the standard deduction, so the deduction rarely arrives. Self-employed people sit in a different position again, because their health insurance costs follow their own set of rules.

There is one further limit. Deductions relating to income you excluded get cut back in proportion, which narrows the claim for anyone using the exclusion.

Family cover follows the employee. Britain values the whole benefit and reports it on the P11D, so adding a partner and children raises the figure and the tax that comes with it. The US question does not change with family size, because the exclusion looks at the plan rather than at the number of people covered by it.

The US question stays the same one: is this an accident or health plan the employer contributes to? Family members covered under the plan generally sit inside the same analysis.

Unmarried partners deserve a second look. The US rules define who counts as an employee's dependant more narrowly than a UK insurer does, and a mismatch there creates income rather than removing it.

Then the cover often sits in a US group plan, and the UK side becomes the harder question. HMRC still asks whether an employer provided a benefit to someone working here, and the answer is usually yes. A US plan does not become invisible because its paperwork is American.

The reporting route differs, though. Where there is no UK payroll, the obligations fall differently, and the employee may have to report the benefit through Self Assessment instead.

We see this most with remote employees hired directly from the United States. The cover was never designed with a UK reporting obligation in mind.

Not directly. Access to the NHS is not a benefit your employer provides, so nothing appears on a P11D and nothing appears on a US return. Private cover sits on top of it as an extra, which is exactly why employers offer it and why it carries a value.

The immigration health surcharge is a separate matter again. It is a condition of a visa rather than an employment benefit, and employers who reimburse it should check how that reimbursement is treated.

We do not treat the surcharge as an insurance premium for US purposes without looking at the facts, because the IRS has published nothing that names it.

Britain collects most benefit tax through the code rather than through a bill. HMRC estimates the value, adjusts your allowances, and your employer deducts more tax each month. The adjustment usually lags the benefit by a year.

That lag creates a reconciliation problem for US filing. The tax you paid in one calendar year may relate to a benefit provided in another, so a crude year-on-year match produces the wrong credit figure.

Payrolling changes the timing. Some employers now report benefits in real time, which removes the lag and makes the two sets of figures much easier to align.

Either way, check which method your employer uses before reconciling anything. It takes one email and saves an afternoon.

Health cover rarely arrives alone. It comes bundled with a car, a bonus and sometimes school fees. Each item follows its own rule in each country. So the package as a whole needs unpicking line by line.

Private medical insurance is usually the easiest of the four to place. The US exclusion is clear, and the UK reporting is routine. The car and the fees are where the work sits.

Start with the benefit you understand. Getting private medical insurance settled first shrinks the problem, and it teaches the method you then apply to the rest.

Half an hour with the right documents usually settles the year.

Take an illustrative package. An American in Bristol earns £80,000 and receives family health cover reported at £2,400 on her P11D. Her UK tax rises accordingly, and her employer pays Class 1A National Insurance on the same figure.

Her US return shows £80,000 of salary and nothing for the cover, because the plan falls inside the fringe benefit exclusion. Her UK tax, however, was calculated on £82,400.

The difference is not large. Getting it wrong in the credit calculation still produces a return that overstates relief, and overstated relief is the kind of error that surfaces years later.

First, adding the P11D value to US wages because it appeared on a UK document. Second, claiming full credit for UK tax without separating out the benefits the US ignores.

Third, treating a cash medical allowance as though it were insurance. A payment into your bank account is pay, whatever the payslip calls it.

Fourth, forgetting that a salary sacrifice arrangement brings the benefit back into UK reporting. Our clients are often told the cover is exempt when what they have is a sacrifice.

We read the policy and the P11D together, then decide what each country is actually taxing. That produces a clean split between income the US recognises and benefits it excludes, which is the split the credit claim depends on.

From there we prepare the US federal return with the allocation documented. Where a package includes several benefits, we do the same exercise for each one rather than treating the total as a single number.

You can send us the P11D and policy summary and we will tell you where the mismatch sits. Our note on school fees covers the benefit that most often compounds this one.