Tax season always throws up some interesting and confusing calculations, but for many, the most confusing of all is how medical aid contributions and Out of Pocket medical expenses are treated.
Effective March 2012, the Medical Aid Tax Credit was introduced. Prior to this date, your contributions to medical aid were deducted from your income earned in order to work out your tax, much like other tax deductible expenses. From the 2013 tax year however, your medical aid contributions are used to calculate a tax credit which is deducted against the actual tax paid. For the 2020 tax season the medical aid credit is R310 per member for the first two members per month and thereafter R209 per member per month. The aim of this change was to even out the tax benefit regardless of income levels.
1 person: R310 x 12 = R3 720 medical aid credit 1 person with 1 dependent: (R310 x 2) x 12 = R7 440 medical aid credit 1 person with 2 dependents: ((R310 x 2) + R209) x 12 = R9 948 medical aid credit
TaxTim has received many questions asking why, on their tax return assessments (ITA34), there is no amount for Additional Medical Expenses Tax Credit, even when they have entered a value for qualifying medical expenses.
The reason is due to the very complicated formula SARS uses to calculate whether your Out of Pocket medical expenses must reduce your total tax owing. The calculation depends on the income you earn and in many taxpayers' cases there actually is no reduction because the required threshold is not met.
The calculation (if you are under age 65 years) is as follows:
1. Combine your Out of Pocket medical expenses (expenses not recouped by a medical scheme) with your total medical aid contribution, less 4 x the medical tax credits for the year (as seen above). 2. Calculate your taxable income and multiply it by 7.5%. 3. If your answer to number 1 is greater than the answer to number 2, then you will indeed have spent enough on medical expenses in order to receive an additional tax credit.
1 person: R310 x 12 = R3 720 medical aid credit
Out of Pocket medical expenses = R10,000 Medical Aid contribution for 1 member = R2,000 x 12 months = R24 000 Taxable Income = R250 000
Excess medical credit = R24 000 - (4 x R3 720) = R9 120 Excess + Out of Pocket Medical Expenses = R9 120 + R10 000 = R19 120 Taxable income x 7.5% = R18 750
Therefore the 'additional medical expenses credit' = R19 120 - R18 750 = R370 X 25% = R92.50
Play around with the numbers to see if your Out of Pocket expenses are sufficient in order for you to get an Additional Medical Credit or take the easy option and try our handy Medical Tax Credits Calculator.
Remember to keep all proof of payment and pharmacy documents for your Out of Pocket medical expenses in case SARS asks for proof.