Tax Tuesday: Medical aid tax deductions

De Wet De VilliersLatest, Tax Tuesday

In this blog, we dig a little deeper into the tax realm of medical aids and expenses. As a taxpayer, you’re essentially entitled to two medical tax credits:

1. A credit on contributions made to your medical aid, and
2. A credit on additional medical expenses you paid that weren’t covered by your medical aid.

1. Medical Scheme Fees Tax Credit (MTC)

If you’re a member of a medical aid, you’re not allowed to claim your monthly premiums as a deduction for tax purposes. However, the South African Revenue Service (SARS) grants you a monthly tax credit* (MTC) for every month that you were a member of a medical aid during the relevant tax year. Below are the details of the MTC for the tax year ending on 28 February 2019:

Monthly Tax Credit – 2019 Tax Year

  • R310 per month for the taxpayer who paid the medical scheme contributions (you get this credit even if your employer pays the contributions on your behalf)
  • R310 per month for the first dependant
  • R209 per month for each additional dependant(s)

2. Additional Medical Expense Tax Credit (AMTC)

Additional Medical Expenses Tax Credit (AMTC) is a rebate which reduces the tax payable by the taxpayer. It’s mostly calculated against qualifying out-of-pocket medical expenses paid by you or any dependant. The AMTC is additional to the MTC.

Out-of-pocket medical expenses are medical expenses paid by you or a dependant (a spouse or child) that aren’t covered by your medical aid.

The AMTC is a tax credit that you can claim on all out-of-pocket medical expenses paid in addition to MTC. The credit is handled as a rebate to reduce your normal taxation.

Calculation of AMTC

All taxpayers younger than 65 years and who aren’t disabled can claim 25% of:

• The amount paid to your medical scheme that exceeds four times the amount of the medical tax credit you are entitled to, plus
• The amount of qualifying medical expenses paid out-of-pocket exceeding 7.5% of taxable income.

Sarah pays her family’s medical expenses. For the 2019 tax year (ending on 28 February 2019), we can assume the following:

  • Sarah’s taxable income: R420,000
  • Medical contributions paid to the medical aid: R66,000
  • Sarah has been a member for 12 months.
  • Qualifying out-of-pocket medical expenses paid: R40,000
  • Sarah is married and has three children (four dependants in total).

If you are 65 years or older, or you or one of your dependants has a disability, you can claim:
• 33.3% of the amount paid to your medical aid that exceeds four times the amount of medical tax credits you are entitled to, plus
• 33.3% of qualifying medical expenses paid out-of-pocket.
Please note – during e-Filing this calculation should be automated.

*A tax credit is not a normal tax deduction. It’s a deduction against the amount of tax owed to SARS and is, therefore, a higher form of tax deduction.

Please consult the SARS website for qualifying out-of-pocket expenses

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday.

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