What you should know about medical tax credits
27 January 2014
Posted by: Author: Ingé Lamprecht
Author: Ingé Lamprecht (MoneyWebTax)
More changes to be introduced from 1 March. Over the past two years, the tax benefits individuals enjoy for medical aid contributions and expenses, have gradually changed from a deduction to a tax credit system.
While the deductions for medical aid contributions have already been replaced with a medical credit system for most taxpayer categories, deductions for qualifying medical expenses will also be replaced with a credit system from March 1 this year.
Wessel Smit, member of the South African Institute of Chartered Accountant's (Saica) national tax committee, explains that a tax credit reduces an individual's tax liability. This differs from a medical deduction, which lowers an individual's taxable income.
A medical tax credit allows all taxpayers the same benefit in rand, whereas a medical tax deduction is more beneficial to a taxpayer with a marginal tax rate of 40% than someone who pays 18%, he says.
The disadvantage is that if an individual's tax liability in a given tax year is not sufficient to utilise all the tax credits available, the benefit will be forfeited and not be carried over to the next year.
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This article first appeared on moneywebtax.co.za.