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Medical Aid Tax Credits – Week 3

Medical Scheme Fees Tax Credits

Medical Aid Tax Credits

Thank you for joining us for the 3rd part in the Medical Aid Tax Credits Series.

How does it work?

Medical Scheme Fees Tax Credit will impact both the employer and the employee. This credit must be taken into account by the employer when calculating the amount of Employees’ Tax to be deducted from the employees’ remuneration.

Example 1 – Determination of MTC for the 2015 year of assessment

LM (aged 47) paid R1 700 per month to a registered medical scheme for the 2017 year of assessment and did not incur any other medical expenses during the year. LM’s taxable income (after accounting for all applicable deductions) for the 2017 year of assessment, is R120 000. LM is the main member of the medical scheme, and has one dependant registered on that scheme.  MTC calculation: 

Total contributions: R1 700 × 12 = 20 400

MTC: Member and one dependant = R572 per month, thus:

R572 × 12 months = R6 864 maximum rebate for the year of assessment

Calculation of net normal tax

Normal tax on R120 000 (at 18%)      21 600

  Less: Primary rebate                            (13 257)

8 343

  Less: MTC                                              (6 864)

Net normal tax due                               1 479

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What is Additional Medical Expenses Tax Credit?

  • From 1 March 2014, the excess medical scheme fees,
  • Together with the qualifying out of pocket medical expenses
  • Will be converted to the Additional Medical Expenses Tax Credit (same as the Medical Scheme Fees Tax Credit) and is non-refundable.

What qualifies as out-of-pocket medical expenses?

Amounts paid and not recovered during the year of assessment in respect of:

  • Services rendered and medicines supplied by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist;
  • Hospitalisation in a registered hospital or nursing home;
  • Home nursing by a registered nurse, midwife or nursing assistant, including when supplied by any nursing agency;
  • Medicines prescribed by a registered physician and acquired from a pharmacist;
  • Medical expenses incurred and paid outside South Africa which is similar to the above expenses;
  • Any expenses as prescribed by the Commissioner as a result of any physical impairment or disability.

Do you have any questions around medical aid tax credits? Speak to our expert payroll consultants today…

Disclaimer: The information published in this article or newsletter is of general nature and should not be used without obtaining specific advice as to its application in your business or under your specific circumstances. Pay Solutions will accept no liability if the information is used without first obtaining specific advice from one of our consultants.