Can premium amounts paid due to birth and military service debt be deducted from the payroll?

Subject: Deduction of premium amounts paid for military service and maternity leave from the wage base

In the special ruling request form referenced, the opinion of our Directorate is requested regarding whether the premiums paid by the employees to the Social Security Institution for military service and maternity leave can be deducted before or after the minimum wage exemption is applied in the calculation of the income tax base.

According to the relevant articles of the Income Tax Law No. 193:

• Article 61, titled “Definition of Wage,” states:
  “Wages refer to money and benefits provided in return for services to employees who are dependent on an employer and tied to a particular workplace. These include payments in cash and in kind that can be represented by money.The nature of the wage is not changed by whether it is paid under different names such as allowance, compensation, cash register indemnity (financial responsibility indemnity), allocation, increment, advance, fee, board membership fees, bonus, or any other name, or if it is determined as a percentage of profit, provided there is no partnership relation.”
• Article 63, titled “Real Wages,” states:
  “The real net value of the wage is the remaining amount after deducting the following from the total of the benefits and cash provided by the employer….
  2. Premiums and contributions paid to retirement funds established by law and those specified in Article 20 of the Social Security Law No. 506.

  …”

• In the first paragraph of Article 94, titled “Tax Withholding,” it is stated that:
  “Public administrations, economic public enterprises, other institutions, commercial companies, joint ventures, associations, foundations, the economic enterprises of associations and foundations, cooperatives, fund managers, taxpayers who declare their real income, and farmers who determine their agricultural income based on the balance sheet or agricultural business account must withhold income tax at the time of making the payments listed below (including advances) either in cash or on account, and deduct it from the income of the beneficiaries according to Articles 103 and 104.
  1. From the wages paid to employees and the payments listed in Article 61 (excluding those benefiting from exemptions), tax withholding is applied based on the provisions of Articles 103 and 104.

  …”

In addition, under the first paragraph of Article 23 of the same law, the clause added by Article 2 of Law No. 7349 (18) states:
“The wages of employees corresponding to the amount remaining after deducting the worker’s social security institution premium and unemployment insurance premium from the gross monthly amount of the minimum wage valid in the month the payment is made (provided that the income brackets and rates on which the tax is calculated, including the amounts under the exemption, are determined for the taxation of income exceeding the exemption. The tax amount payable is calculated by deducting the portion of the tax corresponding to the exempt amount from the tax found in this way. The amount of tax that will not be collected due to the exemption cannot exceed the tax that should be calculated on the monthly minimum wage for the relevant month. In cases where wages are received from more than one employer, this exemption is applied only to the highest wage).”

The first paragraph of Article 6 of the General Communiqué on Income Tax No. 319, titled “Income Tax Exemption for Employees Earning More Than the Minimum Wage,” states:
“The deductions listed in Articles 31 and 63 of the Income Tax Law No. 193 will be deducted from the wages and wage-like incomes earned by employees, and, if any, the payments under Article 23 and subsequent articles, except for clause (18) of the first paragraph of Article 23, will not be included in the income tax base. The income tax rate will be applied to the income tax base determined in this way, and the tax will be calculated. The tax corresponding to the exempt amount will be deducted from the tax calculated in this way to determine the tax payable. The benefit provided by this exemption cannot exceed the tax calculated on the minimum wage for the relevant month.”

On the other hand, in the section titled “1- Contributions and Premiums Paid to Retirement Funds and Social Security Institutions” of the General Communiqué on Income Tax No. 111, it is stated:
“The contributions and premiums paid to the retirement funds and social security institutions established by law for the purpose of ensuring the social security of individuals meeting certain conditions are defined as contributions and premiums and are considered deductible expenses when calculating the real net amount of wages, under the provisions of Article 63 of the Income Tax Law No. 193.

Individuals who are members of legally established retirement funds and social security institutions are granted the right to pay previously unpaid contributions and premiums through borrowing, thereby extending the service periods that will be taken into account for retirement. Under the conditions specified by law, these borrowed contributions and premiums must be paid by the members.

These payments are considered as contributions and premiums listed in Article 63/2 of the Income Tax Law, and their deduction as expenses during the calculation of the real net value of wages is considered in line with the spirit and wording of the Income Tax Law.”

According to Article 41 of the Social Insurance and General Health Insurance Law No. 5510, titled “Periods That Insured Individuals Can Borrow,” the periods that can be borrowed include:

• a) Periods of unpaid maternity leave or maternity leave provided under the law, as well as the periods for which long-term insurance premiums are not paid, not exceeding two years after childbirth, under the condition that the child survives.
• b) Periods spent as a soldier or as a reserve officer or in reserve officer schools.

Upon a written request from the insured or their beneficiaries, the premiums calculated based on 32% of the daily earnings, determined according to Article 82 of this law, will be paid within one month from the date the debt notification is issued, and the borrowed periods will be credited towards their insurance coverage.

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In line with these provisions, the premiums paid to the Social Security Institution for military service and maternity leave can be deducted when determining the real and net wage amounts of employees. These premiums, paid in bulk or in installments by employees for military service or maternity leave, can be deducted from the income tax base starting from the month they are paid, provided that the individual is employed and earning a wage. Income tax will be calculated based on the income tax base determined in this way, and the tax corresponding to the exempt amount for the relevant month will be deducted from the calculated tax to determine the amount of tax payable.

Source: Revenue Administration
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