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How do I treat a medical aid tax credit with regard to employer paying whole med aid which is includ

Posted 25 September 2012 under Tax Questions



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I am an employee that has my employer paying my med aid in full, but it is included in my overall package. So technically i still pay for it. How do the calculations work out. The contribution is R 1356 pm. Before we were working out what was paid, minus the capped amount and allocating the diff. I have to do the interim recons for Sars and have no idea how the tax credit system will affect me. I am the only one in the company that is structured like this. Please help...

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TaxTimTaxTim says:
11 September 2012 at 18:26

You will be taxed on the amount that the employer pays as if you actually earned that amount. So as you say effectively it becomes part of your earnings.

On your payslip you should have under income, the medical aid amount of R1356 source code 3810 and then again under deductions medical contribution source code 4005 and and employer medical contribution source code 4474.

Your tax will be calculated based on the total income per the tables. You then take off the R230 per primary member from the tax amount on the tax tables and pay that amount over to SARS. SARS have not updated these yet.

Let me know if that makes sense?


Candice says:
12 September 2012 at 8:22

Hi Tim
Thank you for getting back to me.
Firstly we dont have a payroll system so everything is done manually. :-(
The only time i use source codes is when i am doing the Sars recons.
So am i right in understanding that at the three source codes 3810, 4005 and 4474 the same amount of R 1356 will appear? Will i enter it the same way in the recon.

My salary is structured as follows:
R 11 164 total package value
R 1356 Med aid
R 1200 petrol card allowance
R 8608 balance which paye and uif are calculated on
R 596 paye (Should the R 230 be coming off this amount)
R 86.08 uif

My employers structured it this way so that i could benefit with regards to tax.

I have not altered my paye since March when the tax credit system came into affect.
am i supposed to be getting the R 230 paye relief every month from my employer or do i pay as per usual and then only benefit yearly when the IRP5 recons get done?

With regards to the new source code for the med aid tax credit 4116 will that be R 230 x 12 under that code when the recons get done, see it does fall under the paye and deductions section on the recon page.

Sorry just trying to understand all of this, tax is not my friend :-)


TaxTimTaxTim says:
17 September 2012 at 12:15

The 3 amounts for those source codes will appear the same only if the entire amount is paid by your employer yes.

"R 8608 balance which paye and uif are calculated on" why is your PAYE only being calculated on the balance and not on the amount including any allowances. These allowances are taxable in your hands as fringe benefits and should be included in the calculation for PAYE. UIF is also calculated on the gross amount.

In March of 2012 with the new medical aid tax credit system the R230 needs to come off the PAYE amount. SARS had not changed the tables in time so they medical deductions weren't taken into account and so you need to manually take the R230 off the PAYE amount for each month. In this way you get relief on a monthly basis and not at the end of the tax year.

Are you referring to the 4116 on the EMP201/501?

Don't worry we are here to help!


Candice says:
17 September 2012 at 12:30

Thanks again for your response, i will look into the paye and uif deductions values.

With regards to the 4116 code, yes i am referring to when i do the EMP201/501 recons, not sure what amount to allow for under that code ie 230x12 or 6 based on interim recon and yearly recon.

So in other words instead of my employer taking off the R 596 per month they shouldve deducted R 230 from that amount and only taken off R 366?
Will i have to recoup this money from my employers, dont suppose Sars will reimburse me.
Is there any right up that i can refer my employer to as proof incase they do not want to pay me out, we will have already submitted our monthly paye recons and payments to Sars, not sure how this will work?


Candice says:
17 September 2012 at 16:39

I read somewhere today, vitality must be deducted in order to get the true med aid value.
Med aid is R 1211
Vitality is R 145

Do i only use the R 1211 amount as the employer total contribution under 3810, 4005 and 4474?

Thanks


TaxTimTaxTim says:
17 September 2012 at 19:55

If it is the 6 monthly recon then you must only put the amounts paid as the EMP501 is merely a summary of the first six EMP201's.

If they have not taken it off you could take the other amounts off in the future, but SARS may query the differences and the recon's may not balance. It may be better to take the medical amounts off from this point onwards. At the end of the tax year, your personal tax return calculation will allow for the full credit, but the amounts paid for PAYE will be too high which will result in a greater refund to you.

Vitality must come off as this is not an allowable medical deduction, but it won't make a difference because the fringe benefit is still the full amount paid and deducted accordingly. There are general source codes for other Fringe Benefits such as 3801 under income, and as there is no tax allowed deduction anymore for the medical aid this could be shown under a different section for deductions as well. Remember that the PAYE is calculated on Income less deductions and medical aid isn't taken into account anymore and Vitality does not qualify for a deduction for tax purposes.


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