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How the New Medical Tax Credit System Will Work

Monday, 30 April 2012   (0 Comments)
Posted by: Author: Jan Howell
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How the New Medical Tax Credit System Will Work

Changing the treatment of contributions to a medical scheme from a tax deduction system to a tax credit system will make medical scheme membership more financially accessible for low-income earners.

The graph below (left) represents a family of two with monthly medical scheme contributions of R1 440 or more, and relates to members younger than 65 with no tax benefit derived from out-of pocket medical expenses.In 2011,the top income earners received the biggest tax benefit for contributions made to medical schemes.This is shown by the stepped line indicating the tax deduction system. However, in 2012 as shown by the solid line (tax credit system), the top income earners will qualify for as maller tax benefit under the new system when compared to 2011,and the lower income earners will receive a larger one.

The change in an individual’s personal tax benefit will depend on family size, income (i.e. your marginal tax rate), and the size of your medical scheme contribution.For example, the graph below(right) illustrates the changes in the tax benefit for a family with two members belonging to the medical scheme.The different lines represent different medical scheme contribution rates (the graph for a contribution of R1 440 per month is the same for all contributions higher than this).

It’s clear that the biggest increase in tax benefits is given to people earning up to R150 000 per annum. Thereafter it decreases, so that some people will eventually get a reduction in their tax benefit when compared to the previous tax year.


Source: By Jan Howell (Tax breaks)



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