What is Code 4006 on a South African Payslip?
Loss of income and PHI insurance explained — whether premiums are tax-deductible, why the claim benefit is tax-free either way, the difference between employer-paid and employee-paid policies, and IRP5 reporting.
4006Code 4006 is a contribution to a loss of income or PHI (permanent health insurance) policy — income protection that pays if you cannot work due to illness or injury. Employee-paid premiums appear as code 4006 on your IRP5 but are not tax-deductible. The claim benefit is tax-free either way. If your employer pays the premiums instead, that premium is a taxable fringe benefit added to your income each month while the cover runs.
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What Code 4006 Means
Code 4006 covers your contribution to a loss of income or permanent health insurance (PHI) policy — cover designed to replace part of your salary if illness or injury leaves you unable to work. It sits apart from retirement fund codes (4001–4003) and medical aid codes (3810/4005/4116/4474): PHI protects your income stream itself, not your retirement savings or your medical bills.
What makes code 4006 unusual is that the claim benefit is tax-free no matter who pays the premium — that part doesn't change. What does change is the tax cost during the years you're covered, before any claim happens. An employee who pays their own premiums (code 4006) gets no deduction, funding the premium entirely from after-tax income. An employer who pays the premiums on the employee's behalf creates a taxable fringe benefit for the employee — the premium is added to taxable income each month, with no offsetting deduction since a 1 March 2015 reform removed the mechanism that used to cancel it out.
This matters most while the policy is running, not at claim time — the worked example below shows the ongoing monthly PAYE cost of an employer-paid premium. It's worth checking your own policy documents to establish who actually pays the premium, since payroll structures vary and the answer isn't always obvious from the payslip alone.
| Who Pays Premiums | Premium a Taxable Fringe Benefit? | Claim Benefit Taxable? | IRP5 Code |
|---|---|---|---|
| Employee (code 4006 deduction) | No — paid from after-tax income, no deduction | No — tax-free | 4006 |
| Employer (group scheme) | Yes — added to taxable income monthly, no offsetting deduction | No — tax-free | 3808 (or 3801 if employer owns the policy) |
Consider an employee earning R30,000/month whose employer pays a R600/month PHI premium as a taxable fringe benefit. Adding R600/month to taxable income increases the employee's annual PAYE from R73,992 to R75,864 — an extra R156/month, every month the cover is in place, regardless of whether a claim is ever made. An employee paying the same R600/month premium out of their own after-tax salary faces no such monthly increase, but gets no deduction for it either. Either way, if a valid disability claim is eventually paid, the monthly benefit itself is received tax-free.
Under some group PHI policy structures, benefits paid in the first two years of disability are treated differently from ongoing benefits. Always check your policy wording and ask your insurer how benefits are structured and taxed. SARS rules on income protection benefit taxation are clear in principle but can become complex in practice with group schemes, rehabilitation provisions, and partial disability. A registered financial adviser can clarify the position for your specific policy.
Frequently Asked Questions
What does code 4006 mean on my payslip?
Code 4006 is a contribution to a loss of income or permanent health insurance (PHI) policy — income protection cover that pays a monthly benefit if you cannot work due to illness or injury. The contribution is deducted from your salary by your employer and remitted to the insurer. Importantly, employee-paid PHI premiums are not tax-deductible in South Africa — they are paid from after-tax income. However, any benefit you receive from an employee-paid policy is tax-free.
Are income protection insurance premiums tax-deductible?
No — employee-paid income protection or PHI premiums are not deductible from taxable income in South Africa. Section 23 of the Income Tax Act excludes most personal insurance premiums from deduction. Code 4006 premiums appear on your IRP5 for reporting purposes but do not reduce your taxable income. This is different from retirement fund contributions (codes 4001-4003) which are deductible under Section 11F.
Are income protection benefits taxable when I claim?
No — the claim benefit is tax-free regardless of who paid the premiums. Since the 1 March 2015 reform, an income protection payout is tax-free whether you paid the premiums yourself (code 4006, no tax relief on the way in) or your employer paid them for you. The employer-paid case does carry its own tax cost, but it applies during the years you're paying premiums, not at claim time: the employer's premium is treated as a taxable fringe benefit added to your income each month, with no offsetting deduction.
What is the difference between PHI and disability cover in a life insurance policy?
PHI (Permanent Health Insurance) or income protection pays a monthly income benefit — typically 75% of salary — for as long as you are unable to work, up to the policy's defined period (often to age 65). Disability cover in a life insurance policy typically pays a lump sum on a defined disability event. Both are generally tax-free benefits to the recipient, whether the underlying premiums were paid by the employee or the employer — the tax difference between the two lies in whether the premium itself was a taxable fringe benefit during the years it was paid, not in the eventual payout.
Does code 4006 appear on my IRP5 if my employer has a group scheme?
It depends on the scheme structure. If the employer pays the group PHI premiums entirely, no code 4006 appears (there is no employee deduction) — but the premium is reported as a taxable fringe benefit under code 3808 (or code 3801 if the employer owns the policy) and adds to your taxable income each month. If the employee contributes to a group scheme via a payroll deduction, code 4006 reflects the employee contribution instead. Either way, since the 1 March 2015 reform there is no offsetting deduction for the employee against an employer-paid premium.
Should I choose a group PHI scheme or an individual policy?
This is mostly a financial planning decision, since the claim benefit is tax-free either way. Group schemes (employer-paid) are typically cheaper and simpler to arrange, but the premium is a taxable fringe benefit that adds to your PAYE every month you're covered. Individual policies (employee-paid, code 4006) have non-deductible premiums paid from your own after-tax income, with no monthly fringe-benefit cost added on top. The real trade-off is cost and convenience during the years you're paying, not the tax treatment of a claim. Discuss with a registered financial adviser for advice specific to your income level and risk profile.