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Understanding medical scheme fees tax credits

Claiming medical expenses from SARS is easier than most people think.

Read on and you’ll soon understand the basic calculations behind medical scheme fees tax credits.

Medical expenses

In 2012, SARS changed the way it treats medical expenses and introduced a medical scheme fee tax credit. Originally, your medical aid contributions would be a deduction against your taxable income. Now, 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 scheme fees tax credit; and
  2. The additional medical expenses tax credit

What is the medical scheme fees tax credit?

This rebate applies to the fees paid by you, as a taxpayer, to a registered medical scheme on behalf of yourself and your dependants. The main member, as well as the first dependant on the medical scheme, will receive a monthly tax credit of R310 (for the 2018-2019 tax year). All additional dependants will receive a monthly tax credit of R209 (for the 2018-2019 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 scheme 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 is a tax rebate, which means that the overall amount of tax you need to pay at the end of the tax year is reduced. The amount of your tax rebate is made up of all the extra money (out-of-pocket expenses) you have spent on qualifying medical expenses that weren’t covered by your medical scheme. This amount accumulates throughout the tax year.

Qualifying out-of-pocket expenses include the following:

  • Consultations, services or medications from a registered medical practitioner, orthopedist, physiotherapist, dentist, chiropractor, herbalist, homeopath, optometrist, osteopath or naturopath.
  • Admission to a registered hospital, including nursing homes.
  • Care at patient’s home by a registered nurse, nursing assistant, nursing agency or midwife.
  • Medicines prescribed by a duly registered physician (as listed above) and acquired from a duly registered pharmacist.
  • Medical expenses on services rendered or medicines supplied outside of South Africa and which are substantially similar to the services and medicines listed above.
  • Money paid towards treatment of a physical impairment or disability (as long as it is a qualifying expense prescribed by the Commissioner).

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

Below are some examples:

Example 1

Paul is 48 years old and contributes R50 000 to a medical scheme for the year for himself, his wife and their two daughters. Neither he nor any of his dependants have a disability. His taxable income for the year was R400 000. He paid R36 000 for medical treatments which could not be claimed from his medical scheme, as he is on a hospital plan without a medical savings facility.

The calculation of his total medical credit for the 2018-2019 tax year will be as follows:

Medical scheme fees tax credit:
(R310 + R310 + R209 + R209) x 12 = R12 456

Additional medical expenses tax credit:
Excess medical aid contributions:
R50 000 – (R12 456 x 4) = R176

Out-of-pocket expenses:
R36 000 – (R400 000 x 7.5%) = R6 000
(R176 + R6 000) x 25% = R1 544

Total medical credit:
R12 456 + R1 544 = R14 000

Example 2

Michelle is 66 years old and contributes R24 500 to a medical scheme for the year. She has no dependants. Her out-of-pocket expenses were R16 000.

The calculation of her total medical credit for the 2018-2019 tax year will be as follows:

Medical scheme fees tax credit:
R310 x 12 = R3 720

Additional medical expenses tax credit:
Excess medical aid contributions:
R24 500 – (3 x R3 720) = R13 340

Out-of-pocket expenses:
33.3% x (R13 340 + R16 000) = R9 770.22

Total medical credit:
R3 720 + R9 770.22 = R13 490.22

Medical dependants include the following people:

  • Your husband or wife.
  • Your child or stepchild
    • Younger than 18 years of age.
    • Younger than 21 years of age and is/was partly or entirely dependent on you and is/was not yet liable to pay normal tax for the year.
    •  Younger than 26 years of age and is/was partly or entirely dependent on you, is/was not yet liable to pay normal tax and is a full-time student.
    • Is any age and is/was unable to care for themselves because of a disability, is not liable for normal tax for that year and is partly or entirely dependent on you.
  • Any family member you are financially responsible for.
  • A person who your registered medical scheme or fund recognises as a dependant.

What counts as a disability?

Moderate to severe mental, physical, hearing, intellectual, communication or vision disabilities count as “disabilities” for tax purposes. You and a registered medical professional must complete and submit the ITR-DD form in order to qualify as having a disability.

Once you know the basics, medical scheme fees tax credits are actually quite simple and easy to understand.

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