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Dissecting Medical Aid Credits

24 July 2017   (0 Comments)
Posted by: Authors: Nicci Courtney-Clarke & Alicia Human
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Authors: Nicci Courtney-Clarke (nicci@taxtim.com) & Alicia Human (alicia@taxtim.com)

Claiming medical expenses from SARS is easy. This article will help you understand a few basic calculations.

 

Medical expenses

 

In 2012, SARS changed the way it treats medical expenses on the assessment, from allowing your medical aid contributions to be a deduction against your taxable income to introducing a medical credit. This medical credit is a tax credit which is deducted from your overall tax liability. The medical tax credit consists of the following two amounts:

 

1.       The medical schemes fees tax credit

2.       The additional medical expenses tax credit

 

What is the medical schemes fees tax credit?

 

This rebate applies to the fees paid by a taxpayer to a registered medical scheme for you, as the taxpayer, and your dependants. The main member as well as the first dependant on the medical aid will receive a monthly tax credit of R303 (for the 2018 tax year) and any additional dependants will receive a monthly tax credit of R204 (for the 2018 tax year).

 

If you are paying your contributions via your employer, i.e., as a deduction from your salary or wages, your employer is obliged to use the credit system to adjust your monthly PAYE tax accordingly. If you contribute to a medical aid independently from your employer, you will receive the tax credit on assessment when you complete your tax return.

 

What is the additional medical expenses tax credit?

 

This tax credit comprises the following two parts:

 

1.       Excess medical aid contributions

2.       Out-of-pocket medical costs

 

Out-of-pocket medical expenses are expenses you had to pay that were not reimbursed fully or claimed from the medical aid. The types of expenses that would qualify include expenses paid for the following medical bills:

 

·         Registered medical practitioner

·         Hospital

·         Nursing home

·         Dentist

·         Optometrist

·         Homeopath

·         Naturopath

·         Osteopath

·         Herbalist

·         Physiotherapist

·         Chiropractor

·         Orthopaedist

·         Home nursing by a registered nurse or when it is supplied by a nursing agency

·         Midwife

·         Prescription medicine

 

If these expenses were incurred outside South African borders and you still have proof of it, you can declare it under the out-of-pocket expenses section too.

 

It is important to note that “over the counter” medicines, such as cough syrups, headache tablets or vitamins, do not qualify as medical expenses, unless specifically prescribed by a registered medical practitioner and acquired from a pharmacist.

 

To calculate the additional medical expenses tax credit, special formulas are used. The specific formula to use depends on your age and whether you or one or more of your dependants has a disability.

 

Calculations for additional medical expenses tax credit

Age and disability status

Formula

Under 65, without disability

25% of:
Total contributions paid to the medical scheme
Less (4 x medical scheme fees credit)
Plus (qualifying medical expenses paid less 7.5% of taxable income)

Under 65, with disability

33.3% of:
Total contributions paid to the medical scheme
Less (3 x medical scheme fees credit)
Plus (qualifying medical expenses paid)

65 or over, with or without disability

33.3% of:
Total contributions paid to the medical scheme
Less (3 x medical scheme fees credit)
Plus (qualifying medical expenses paid)

 

Below are some examples:

 

Example 1

Richard is 60 years old and contributes R50 000 to a medical aid for the year for himself, his wife and their two children. Neither he nor any of his dependants have a disability. His taxable income for the year was R200 000. He paid R36 000 for medical treatments which were not claimed from his medical aid for the year as his medical aid savings had run out.

 

The calculation of his total medical credit for the 2018 tax year will be as follows:

 

Medical schemes fees tax credit:

(R303 + R303 + R204 + R204) x 12 = R12 168

 

Additional medical expenses tax credit:

Excess medical aid contributions: R50 000 - (R12 168 x 4) = R1 328

 

Out-of-pocket expenses:

R36 000 - (R200 000 x 7.5%) = R21 000

(R1 328 + R21 000) x 25% = R5 582

 

Total medical credit: R12 168 + R5 582 = R17 750

 

Example 2

Jane is 68 years old and contributed R24 500 to a medical aid for the year for herself only as she has no dependants. Her out-of-pocket expenses were R40 000. The calculation of her total medical credit for the 2018 tax year will be as follows:

 

Medical schemes fees tax credit:

R303 x 12 = R3 636

 

Additional medical expenses tax credit:

Excess medical aid contributions: R24 500 - (3 x R3 636) = R13 592

 

Out-of-pocket expenses:

33% x (R13 592 + R40 000) = R17 846

 

Total medical credit: R3 636 + R17 846 = R21 482

 

Refer to TaxTim’s website (taxtim.com/za/calculators/medical-aid-credits) for a handy medical aid tax credit calculator, which will save you doing all the hard work yourself when calculating your medical credit due.

 

Please click here to complete the quiz.

This article first appeared on the July/August 2017 edition on Tax Talk. 


 

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