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My medical aid is paid by my former employer: How does this affect my tax?

Posted 23 October 2019 under TaxTim's Blog

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My medical aid is paid by my former employer: How does this affect my tax?

When you retire, your soon to be ‘ex-employer’ might offer to continue to pay your medical aid. If you are one of the fortunate few to receive such a benefit, read on for some things to look out for:

1) Your employer must issue an IRP5 showing the amount they pay on your behalf towards the medical aid - this should show next to code 4493. Don’t worry, you won’t be taxed on this amount. (This is different to when you were employed, and you were taxed on your employer’s contribution to your medical aid).
 
2) You might not receive this IRP5 from your employer, but it will definitely be sent to SARS. Even though you are not taxed on this amount, it will be included on your tax return and the amount will automatically reflect in the medical section of your return, next to source code 4493, as this is the total amount your employer paid to the medical aid on your behalf.

3) The flip side of not being taxed on this benefit is that unfortunately your medical tax credit either decreases or it's automatically nil depending on whether your employer covered your entire contributions, or if you still had to pay a portion out of your own pocket.

4) The reason you are not receiving a medical tax credit is because you did not bear the financial burden of paying the medical aid like you used to before you retired.

5) Even though you will no longer receive the medical tax credit due to belonging to a medical aid, you could still receive a medical tax credit for any doctors, hospital or medicine bills you pay personally that are not reimbursed by your medical aid so remember to keep track of all of those receipts.

6) Your medical tax certificate will reflect the total contributions paid on your behalf just like before you retired. This would include your own contributions (if applicable) plus the amount paid by your ex-employer.

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