Report
Workplace health cover is taxed at 49.25%. If that tax goes, the money is your employer's, not yours
Source: FSC, Why removing FBT on workplace insurance stacks up
Insurers want Fringe Benefit Tax taken off employer-paid cover, and have modelled $198 million of national benefit. On most workplace schemes the tax is 49.25 cents in every premium dollar, the same for a cleaner as for a chief executive. Nothing in the proposal sends any of it to you.
By Henry Smith · Premiums · 2026-08-12
What this means for you If your health or life cover comes through your employer, nothing about it changes now: this is an industry proposal, Inland Revenue has objected to it, and Budget 2026 changed Fringe Benefit Tax only on company vehicles. Fringe Benefit Tax never touches your payslip, so even if it were removed the saving would land on your employer's tax bill rather than your pay. On the pooled schemes most workplaces run that saving is 49.25 cents on every dollar of premium, and whether it becomes better cover, more staff covered, or nothing at all is the employer's choice.
If your health or life insurance comes through your employer, the government treats it as a perk and taxes it. Your employer pays that tax, not you, and on the pooled schemes most workplaces run it costs 49.25 cents on every dollar of premium (Inland Revenue). Nearly half as much again as the cover itself.
The insurance industry wants it gone. On 12 August 2026 the Financial Services Council, the body for life and health insurers, published economic modelling putting the national gain at up to $198 million (FSC, 12 August 2026).
Here is the part the modelling does not say out loud. Fringe Benefit Tax, or FBT, never touches your payslip, so taking it away puts the saving on your employer's tax bill. Whether that becomes better cover, more staff covered, or nothing at all is your employer's choice, and nothing in the proposal forces the first two.
How big is the tax on workplace cover?
Inland Revenue charges FBT either at a single flat rate of 63.93%, or at a set of stepped rates that rise with what each employee earns, from 11.73 cents in the dollar at the bottom to 63.93 cents at the top (Inland Revenue).
Those steps are not arbitrary. Each is a marginal income tax rate rebuilt as a tax on the employer, set so that handing someone a benefit and handing them the cash cost the employer the same. Even the thresholds line up: a $180,000 salary leaves $130,722.50 after tax, and the top FBT band starts at $130,724 (same page). Our guide to employer sponsored health insurance in NZ works that through at the top rate.
Chart: QuoteHub calculation from Inland Revenue's published FBT and income tax rates. Illustration of the tax arithmetic only, not a quote and not tax advice.
| Employee gross income | Marginal income tax rate | FBT rate | FBT added per $1,000 of premium |
|---|---|---|---|
| Up to $15,600 | 10.5% | 11.73% | $117.30 |
| $15,601 to $53,500 | 17.5% | 21.21% | $212.10 |
| $53,501 to $78,100 | 30% | 42.86% | $428.60 |
| $78,101 to $180,000 | 33% | 49.25% | $492.50 |
| $180,001 and over | 39% | 63.93% | $639.30 |
QuoteHub arithmetic on the same Inland Revenue rates. It assumes the whole benefit falls inside one band and that the employer uses the full alternate rate method. The $1,000 column is a unit of arithmetic, not a published average premium.
Would my workplace scheme get the flat rate?
Most schemes never touch that ladder, and the rule that decides it is not in the FSC's material.
Once an employer spends more than $1,000 a year insuring one person, Inland Revenue normally attaches the premium to that employee, which is what triggers the stepped rates. But an employer can instead pool the premiums, meaning tax them all together at one flat 49.25%, so long as "all employees have the same or similar entitlement" (Inland Revenue). The only people left out are major shareholders who also work in the business (same page).
A typical workplace scheme offers the same plan on the same terms to everyone, which is exactly the pooling condition. So on most workplace cover the tax is 49.25 cents in the dollar for a cleaner and a chief executive alike. The stepped table applies only where an employer taxes each premium individually.
What is the industry asking for?
The FSC's modelling was done by NZIER, an economics consultancy, and paid for by the FSC. It finds that removing FBT from employer-paid life, health, trauma, disability and income protection insurance "could deliver up to $198 million in net economic benefits" and "could extend group health insurance coverage to around 200,000 additional Kiwis". For every dollar of tax the government stopped collecting, it puts wider benefits at "between $1.74 and $1.94" (FSC).
On hospital queues it estimates "up to 10,459 procedures could move from public waiting lists into private care, saving patients a combined 471,630 waiting days", which the FSC calls 14 per cent of the relevant Health NZ waitlist and a 52.6 per cent reduction in expected waiting days for those patients (same page).
Released alongside it was polling: "68% of New Zealanders support removing FBT on employer-provided health and life insurance". Curia ran it for the FSC in early August, 1,000 respondents, margin of error plus or minus 3.1% (FSC, 12 August 2026).
The FSC is an industry lobby group. Its members are the insurers who would sell the extra cover, and it paid for both the modelling and the poll. None of that makes the numbers wrong. It does mean this is advocacy.
Is the $198 million solid?
Less solid than a single headline number looks, because three of the sums behind it were never published.
The headline is the top of a range. The FSC's page gives the net figure and the ratio but not the parts they are built from. Those reached us only through a news outlet: total benefits of $408.7 million, set against $210.7 million to $234.5 million of tax the government would stop collecting, netting out at "between $174.3 million and $198 million" (Insurance Business NZ, 12 August 2026). The bottom of that range is $24 million lower than the number in the release.
The waiting lists rest on an assumed wait. Work backwards from the FSC's own figures and the model assumes a wait of 85.7 days now, falling to 40.6 days for the patients who move into private care. We got there by dividing the days saved by the procedures moved, then applying the 52.6% cut it claims.
The cost per person is high. Divide the tax forgone by the extra people covered and the government gives up between $1,046 and $1,164 a year for each newly insured person. That is crude. It assumes none of the cost falls on people who already have cover, and most of it would.
Would anything change for my policy?
Not now, and probably not at your next renewal. This is a proposal with opposition inside government. Inland Revenue has advised that an exemption would "materially erode the integrity of the broad personal income tax base and create equity concerns". Budget 2026 did change FBT, but only on company vehicles. It left insurance premiums alone (Insurance Business NZ).
For a household with cover through work, the honest read is this. The tax is real and it is large: on a pooled scheme it adds 49.25 cents to every dollar of premium (Inland Revenue), so close to a third of what an employer spends on workplace cover goes to Inland Revenue rather than into insurance. If that tax were removed, the money is the employer's to redirect or to keep. What reaches you is whatever your employer chooses to pass on, which makes it a conversation with your employer rather than with an insurer.
What could we not check?
We could not find a published average for what a New Zealand workplace health scheme costs per employee. No insurer here publishes it. So the figures in the table are a tax rate applied to a round $1,000 of premium, not a typical bill.
We have not read the NZIER report itself. The FSC's download sits behind a members-only gate. So the $408.7 million benefit, the cost range and the extra-policyholder projection reach us only through Insurance Business NZ's reporting of it.
Real FBT sums are messier than the ones here. Employers pick between four calculation methods and different filing frequencies, and benefits can be taxed individually or pooled, so what an employer actually pays depends on the choices it makes. This is general information about how the tax works, not tax advice.
What this means for your cover
What moves a renewal price, and what a review can and cannot change about it. Health insurance in New Zealand
Sources
Every source below was read and checked on 21 August 2026.
- FSC, Why removing FBT on workplace insurance stacks up
- FSC, Kiwis want a long-term plan for KiwiSaver
- Inland Revenue, Full alternate rate calculations for fringe benefit tax
- Inland Revenue, Calculation options and rates for fringe benefit tax
- Inland Revenue, Attributing fringe benefits to individual employees
- Insurance Business NZ, Group insurance FBT proposal faces documented government opposition
Talk to a licensed adviser about what this means for you · free, no obligation.
Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, Referral.