Which of Your Work Benefits Get Taxed

Your employer pays for your benefits, and a small part of what they spend gets added to your pay before the tax comes off. Not much of it, though. What your employer puts into your health and dental plan usually stays outside it, so you're taxed on none of that. Employer-paid group life insurance goes the other way, and what gets added is larger than the premium your employer paid for you. Which way your coverage is treated depends on what it's for, and if you file a Quebec return there's a second answer sitting on top of the federal one.

Key takeaways

• What your employer puts into your health or dental plan isn't income to you federally, as long as the plan meets all the conditions to be a private health services plan.
• Employer-paid group term life is a taxable benefit to you, and what gets reported is the premium plus sales and excise taxes plus your province's insurance levy, less anything you paid back.
• A worked case from the Canada Revenue Agency turns a $2,000 premium into $2,340 on your income. You're taxed on the taxes as well as on your coverage.
• Quebec taxes your employer's share of your group plan on your Quebec return, health and dental included. Your federal answer doesn't change. Two things are carved out. Coverage that replaces lost income, where the benefits are paid periodically, and contributions to an employee life and health trust.

Which parts of your plan land on your T4

If your employer contributes to your health or dental plan, those amounts aren't a taxable benefit to you, provided the plan meets all the conditions to be a private health services plan, or PHSP.¹ That's why the same dollar buys you more inside a plan than outside one. Your employer spends it, you get the coverage, and there's nothing to report.

Two conditions decide whether your plan qualifies, and both have to hold. Everything your plan covers has to be a medical or hospital expense, or an expense connected to one of yours that's incurred within a reasonable time after it. And all or substantially all of the premiums going into your plan, meaning 90% or more, have to relate to medical expenses eligible for the medical expense tax credit.¹ If your plan drifts outside either condition it doesn't qualify, and then your employer's whole contribution lands on your income. In one worked case only half a medical plan's premiums related to eligible expenses, so it failed, and the whole $350 that employer paid for one employee that year went on their T4.¹

Employer-paid group term life insurance counts as income to you whatever else is true.¹ You'll see it under code 40 on your T4, and if you're a former or retired employee it arrives on a T4A under code 119 instead. The $500 threshold that normally decides whether a T4A gets filed doesn't apply to that code, so even a small amount on you gets reported.¹

There's a third case, and it can go either way. If your employer pays premiums into a provincial or territorial hospital or medical insurance plan for you, that's a taxable benefit as well. It reverses where your employer has to pay the employer health tax in Ontario or British Columbia, and then it costs you nothing.¹

Why $2,000 of life coverage shows up as $2,340

Because group term life is valued differently from everything else. For most benefits what's added to your income is simply what your employer paid, less anything you reimbursed.¹ Life coverage is the exception. Where your premiums are paid regularly and the rate doesn't turn on your age or your gender, your group term life benefit is valued as four lines added together. The premium, plus all the sales and excise taxes on your coverage apart from GST and HST, plus any provincial insurance levy your employer has to pay, less any premium or tax you've paid or paid back yourself.¹

Put real numbers through it and you'll see the size of the gap. An employer in Manitoba paid $2,000 in premiums for one employee's group term life coverage. Manitoba charges a 7% insurance levy, so that employer paid $140 more. Sales and excise taxes on the coverage came to $200. The employee reimbursed nothing. What went on the T4 was $2,340.¹

So $2,000 of coverage turned into $2,340 of income, which is 17% more than the premium itself. In your hands that means you're taxed on the taxes, not only on the coverage your employer bought. In that example the gap is $340.

The levy depends on where you work. Three provinces charge one, and the rates are 8% in Ontario, 7% in Manitoba and 9% in Quebec.¹ Anywhere else you've got no levy line, and your taxable amount is just the premium plus the sales and excise taxes. And if your premiums aren't paid regularly, or your rate turns on your age or gender, those four lines don't apply to you and a different calculation does.¹

Are the disability premiums taxed too?

Usually not, because of an exception that catches most workplace plans. Premiums your employer pays into a group sickness or accident insurance plan are a taxable benefit to you, unless they relate to a wage-loss replacement plan benefit that's payable on a periodic basis rather than as a lump sum.¹ Most short-term and long-term disability plans at work pay you a weekly or monthly amount while you're off, so your employer's premiums for them usually stay off your T4.

Your employer's contributions to a sickness, accident, disability or income maintenance plan are generally accepted as qualifying, provided the plan is both a group plan and an insured plan.¹ If yours is one your employer funds out of its own pocket claim by claim, rather than through insurance, it can fall outside that, and then you're back to a taxable benefit.

What happens when your disability plan actually pays you is a different question with a different answer, and it's decided by who paid the premium. Critical illness and private disability insurance walks through the tax side of a payout, along with what EI sickness benefits and CPP disability would pay you while your insurer's still deciding.

In Quebec your dental plan is income as well

Quebec's got its own income tax, and on group benefits it doesn't follow the federal answer. Contributions your employer pays under a group insurance plan for coverage you get because of your job are a taxable benefit on your Quebec return, and that catches a private health services plan, a group life insurance plan, a group critical illness plan, and all your other group insurance plans.²

So a qualifying dental plan your employer pays for adds nothing to your federal income, whether you're in Toronto or Montreal. In Montreal it also lands on a second slip. The value goes into boxes A and J of your RL-1 for a private health services plan, and boxes A and L for any other kind of plan, and box A is your Quebec employment income, so it's inside the pay figure there.²

The carve-out is narrow, and it lines up with the federal one. Contributions for coverage against total or partial loss of your employment income, where the wage-loss benefits are payable periodically, stay out of your income. Nor do your employer's contributions to an employee life and health trust count.² So in Quebec your disability premiums are treated much as they'd be if your job were anywhere else, and your health, dental and life premiums are not.

What decides which side your plan falls on

Your answer turns on four things, and you can walk them in order. Start from nothing added to your income, then add a line for each one below that's true of you.

1. Employer-paid group term life. Add the premium, plus the sales and excise taxes on your coverage, plus your province's insurance levy where there is one.¹
2. A health or dental plan that misses the test. Add your employer's whole contribution if the plan doesn't meet both PHSP conditions.¹
3. A provincial or territorial hospital or medical plan. Add the premium your employer pays for you, unless you're in Ontario or British Columbia and your employer pays the employer health tax there.¹
4. Anything you paid back. Take it off, because your reimbursement reduces the taxable amount rather than sitting beside it.¹

Those four give you your federal figure, and it arrives with code 40 on your T4, inside the employment income in box 14.¹ If you file in Quebec, a second and larger figure runs alongside it on your RL-1, because your employer's share of every group plan you're in counts there too, apart from the coverage that replaces your lost income.²

What the rules won't give you is the dollar figure, only which premiums count. Only your employer knows what those premiums actually are. The code 40 amount is already on your slip, and the split behind it comes from the plan booklet or from payroll. If the number surprises you, that's where you'd go and ask.

A taxable benefit is added to your employment income, so what it costs you is that amount multiplied by your marginal rate, and that rate isn't the same in every province or at every income. Run your own numbers where you live and you'll see what an extra few hundred dollars does to the pay you take home, or read the brackets themselves in Canadian tax brackets by province.

Can you claim the premiums you pay yourself?

The part you pay is treated differently from the part your employer pays, and it can be worth money to you. Where you contribute to a private health services plan, your employer reports what you've paid under code 85 on a T4, or code 135 on a T4A once you're a former or retired employee. You use that figure towards your qualifying medical expenses when you file.¹ If it never turns up under that code, you may be asked for supporting documents instead.¹

Your share of the life premium works the other way and is worth as much. Anything you pay towards it, or hand back to your employer afterwards, comes off before the benefit is reported at all.¹ So a payroll deduction for life coverage isn't purely a cost to you, because it shrinks the figure you're taxed on.

Your T4 and your plan booklet

Your T4 tells you what was added. Your group life, a health plan that failed the test and a provincial medical plan all arrive with code 40, and box 14 already includes them, so you've already paid the tax on them through your pay rather than getting a bill in April.

Your plan booklet tells you what you're covered for, and nothing in the tax rules will. How much life insurance you have, what the dental plan pays a year, how long you'd wait before disability payments start, whether anything follows you out the door when a job ends. Those are all contract terms, written by an employer and an insurer, and they differ from one workplace to the next. The booklet or the plan administrator is the only place you'll get them.

The other half of this is the coverage you'd buy for yourself, once you know what work already gives you. Maya works through which risks are worth paying someone else to carry in "Protect the Plan".

Most of this needs nothing from you

If you have health and dental at work and your plan qualifies, most people in your shoes find nothing here to do. Your employer's share stays out of your income, and the tax question answers itself.

If your employer pays for group life, most people find one figure they hadn't known was there, and they weigh that code 40 amount against how much coverage your employer bought them. A few hundred dollars of extra income for coverage they're glad their family has reads as a fair trade to plenty of people. A few hundred for coverage they'd never have chosen reads differently, and that's a fair reaction too. You'll know which of those describes you once you've seen what your own employer paid.

And if you file a Quebec return, you will probably see a bigger figure there than you expected the first time you look, and it isn't a mistake. None of that decides anything for you. It is what the numbers tend to look like once you can see your own.

?

Common questions

Why is there a taxable benefit on my T4 when I never received any money?+

Because your employer paid a premium for you, and the tax rules treat some of those premiums as income in your hands. Group life's the usual one. Nothing's been deposited to your account, but the premium your employer paid, plus the taxes on it, got added to your pay, and the tax on that came off through the year, not at filing time.

Are health and dental benefits taxable in Canada?+

Federally they aren't, as long as your plan meets all the conditions to count as a private health services plan. If you file a Quebec return, they're taxable there as well, because what your employer puts into a group insurance plan counts as a benefit in your hands under Quebec's own rules. Your federal answer does not change.

How much does employer-paid life insurance add to my income?+

It's more than your employer paid for it. The starting point is your premium, then any sales and excise tax charged on the coverage gets added, plus the provincial insurance levy where your employer has to pay one, and whatever you paid back comes off. In one Manitoba case a $2,000 premium became $2,340 of income. That levy runs 8% in Ontario, 7% in Manitoba, 9% in Quebec, and there isn't one anywhere else, so where you work changes your answer.

Do I pay tax on the disability coverage at work?+

Your employer's premium usually isn't a benefit to you, because the exception covers wage-loss replacement plans paying out periodically instead of as a lump sum, and it's generally accepted where your plan counts as both a group plan and an insured plan. Whether a payment from your plan is taxable when it eventually reaches you is a separate question, and it turns on who paid your premium.

What if I pay part of the group life premium myself?+

Your share reduces the taxable benefit rather than adding to it. Your employer subtracts what's come out of your pay, plus any tax you covered yourself, before the figure reaches your T4 at all, so the more you pay towards the premium, the smaller the number under code 40.

Is the benefit still reported after I retire?+

Yes, if your former employer keeps paying for group term life coverage on you. It moves from your T4 to a T4A and gets reported under code 119, and the $500 threshold that usually settles whether a T4A gets filed has no bearing on code 119, so you'll see it however small it is.

Sources

1. CRAPremiums and contributions to insurance plans: which employer-paid premiums are a taxable benefit, the conditions for a private health services plan, how a group term life benefit is valued, the provincial insurance levy rates, the worked example totalling $2,340, the wage-loss replacement plan exception, and the T4 and T4A reporting codes. Accessed 2026-09-07.
2. Revenu QuébecContributions to a Group Insurance Plan (Including a Private Health Services Plan): the taxable benefit and the plans it reaches, the loss-of-income and employee life and health trust exceptions, and RL-1 reporting in boxes A and J or A and L. Accessed 2026-09-07.

Educational, not financial advice. Figures verified against primary sources on the date shown.

For what your own job already covers if you can't work, see critical illness and private disability insurance, or browse the whole budgeting hub.