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Medical Aid Tax 2014 - How SARS' new changes affect YOU!
Posted 24 February 2014 under
TaxTim's Blog
In 2012 SARS began making changes to how medical expenses were treated for tax purposes. The system at that time created a higher benefit for deducted medical expenses if you earned a high income (bad news for low income earners) and the changes since then have sought to make medical deductions more equal across various income levels.
Basic summary of how SARS calculates your tax
Income Earned
Less: Expenses / Deductions
= Taxable Income
x SARS tax rate
= Tax Payable to SARS
Before 2012
Before the 2012 tax year SARS allowed contributions made to medical aids as deductions against Income Earned (see above). Income Earned would be reduced by the allowable portion of your medical contribution and thus reduce your Taxable Income and your Tax Payable to SARS. Because the deduction is allowed before the SARS tax rate is applied, this arrangement unfairly benefited higher income earners! (see below)
| Monthly salary |
R 12,000 |
R 20,000 |
R 25,000 |
R 40,000 |
| Income Earned (monthly x 12) |
R 144,000 |
R 240,000 |
R 300,000 |
R 480,000 |
| Medical deduction (R720 x 12) |
R 8,640 |
R 8,640 |
R 8,640 |
R 8,640 |
| Taxable Income |
R 135,360 |
R 231,360 |
R 291,360 |
R 471,360 |
| Tax rate for this income bracket in 2012 |
18% |
25% |
30% |
35% |
| Tax Payable with medical deduction |
R 12,285 |
R 34,168 |
R 50,799 |
R 110,462 |
| Tax Payable without medical deduction |
R 13,840 |
R 36,328 |
R 53,391 |
R 113,486 |
| Benefit of deduction due to medical (unfair!) |
R 1,555 |
R 2,160 |
R 2,592 |
R 3,024 |
Deductions: R720 deduction for the first two members (including the taxpayer) and then R440 deduction for any further members would be subtracted against Income Earned.
Other medical expenditure: Deducted against Income Earned provided the amount was greater than the SARS specified threshold.
Taxpayers over the age of 65 / with disabilities: Allowed full deductions against Income Earned of all medical expenditure.
From March 2012
Beginning 1 March 2012 SARS introduced the medical tax credit system for medical aid contributions which was aimed at evening the playing field for lower income earning taxpayers. This credit replaced the previous deduction system and allowed for all taxpayers to receive a credit to reduce Tax Payable instead of a deduction against Income Earned (i.e. after the SARS tax rate is applied). In this way all taxpayers received the same benefit regardless of their income level.
Credits: R242 credit for the first two members (including the taxpayer) and then R162 credit for any further members would be subtracted from Tax Payable (not Income Earned).
Other medical expenditure: Still deducted against Income Earned provided the amount was greater than the SARS specified threshold (see article)
Taxpayers over the age of 65 / with disabilities: Allowed full deductions against Income Earned of all medical expenditure.
From March 2014 – the 2015 tax year
From 1 March 2014 taxpayers of all ages will be subject to a new system which allows only tax credits. Therefore there will no longer be allowed any deductions against Income Earned, but only tax credits that reduce Tax Payable. Depending on the age of the taxpayer, a different tax credit will apply. This will simplify the system and make it simpler for taxpayers to understand and calculate their benefit from medical expenses.
Taxpayers under 65:
- Fixed credit per month of R257 (2015 tax year) per dependent for dependents 1 and 2, and R172 (2015 tax year) for dependents 3, 4, 5 etc PLUS
- IF their medical aid contribution is greater than 4x the above credit, THEN
(that difference + Out of pocket medical expenses)
less an amount equal to 7.5% of your Taxable Income
multiplied by 25% is allowed as a further credit to reduce Tax Payable.
Taxpayers over 65 / with disabled dependents:
- Fixed credit per month of R257 (2015 tax year) per dependent for dependents 1 and 2, and R172 (2015 tax year) for dependents 3, 4, 5 etc (same as above) PLUS
- IF their medical aid contribution is greater than 3x the above credit, THEN
(that difference + Out of pocket medical expenses)
multiplied by 33.3% is allowed as a further credit to reduce Tax Payable.
The effect of the new changes is that SARS has put all taxpayers on an even footing regardless of their income level and thus made taxes fairer for all taxpayers.
UPDATED for the 2017 tax year!
Taxpyers under 65:
R286 per month for the first 2 members
R192 per month for every member thereafter
Taxpayers over 65/disabled dependents:
R286 per month for the first 2 members
R192 per month for every member thereafter
This entry was posted in TaxTim's Blog
and tagged Salary / IRP5, Medical, Deductions, Retirement, Tax Threshold.
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